Explain the effects of depreciation on the Income Statement and the Balance sheet.

Question

Question

Answer 1

Answer #1

Answer:

i. Effect of depreciation on the income statement:

Depreciation is an expense.

It is come under the Expenses in income statement.

It reduces the income.

Only current accounting period depreciation should be charged to 'income statement'.

Example: If the current year depreciation is $1,000, then the income of the company is reduced by $1,000

ii. Effect of depreciation on the Balance Sheet:

Depreciation reduces the asset value.

Total depreciation expense till the accounting period end is an accumulated depreciation. and

This accumulated depreciation reduces the asset value in the balance sheet.

Example: If total depreciation till the current accounting period end is $5,000, then the asset value is reduced by $5,000 in the balance sheet.

Answer 2

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