How depreciation has impact on the financial statement.

Question

Accepted Answer

Depreciation reduces the value of assets over time, impacting the financial statements by decreasing the asset's value and increasing expenses.

Depreciation is a non-cash expense that reflects the wear and tear of assets over time.
It reduces the value of assets on the balance sheet, impacting the company's overall net worth.
Depreciation also increases expenses on the income statement, reducing the company's reported profit.
Different methods of depreciation (straight-line, double-declining balance, etc.) can impact financial statements differently.
Example: A company purchases a machine for $10,000 with a useful life of 5 years. Using straight-line depreciation, $2,000 would be expensed each year, impacting both the balance sheet and income statement.

Popular interview questions of Client Service Analyst