What effect does depreciating a long-term asset have on the financial statements?
A)Depreciation causes a decrease in net income on the income statement and a decrease in total assets on the balance sheet.
B)Depreciation is reported as an operating activity cash outflow.
C)Depreciation is reported as an investing activity cash outflow.
D)Depreciation is reported on the statement of changes in shareholders' equity.

Question

Quizplus · Accepted Answer

Depreciation causes a decrease in net income on the income statement through the allocation of the cost of a long-term asset over its useful life. This decrease in net income flows through to the retained earnings section of the statement of changes in shareholders' equity. The decrease in the value of the asset due to depreciation is reflected as a decrease in total assets on the balance sheet.

What Effect Does Depreciating a Long-Term Asset Have on the Financial