Depreciation is a non-cash expense; its effect on the balance sheet is to:

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $24.99Unlock all

Enhance your accounting skills for the PSIA Accounting Exam. Use flashcards and multiple-choice questions to prepare effectively with hints and explanations. Get set for your exam success!

Multiple Choice

Depreciation is a non-cash expense; its effect on the balance sheet is to:

Explanation:
Depreciation is a non-cash expense, so it lowers reported income without using cash. The balance sheet effect comes from accumulated depreciation, a contra-asset account that increases over time and reduces net PP&E. So net PP&E decreases. At the same time, the depreciation deduction reduces taxable income, lowering taxes and boosting cash flow from operations, which increases the cash the company holds. Put together, depreciation reduces PP&E (net) and increases cash flow, which is the best description of its balance sheet and cash flow impact.

Depreciation is a non-cash expense, so it lowers reported income without using cash. The balance sheet effect comes from accumulated depreciation, a contra-asset account that increases over time and reduces net PP&E. So net PP&E decreases. At the same time, the depreciation deduction reduces taxable income, lowering taxes and boosting cash flow from operations, which increases the cash the company holds. Put together, depreciation reduces PP&E (net) and increases cash flow, which is the best description of its balance sheet and cash flow impact.

More Multiple Choice Questions
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy