Depreciation for a profitable firm:Group of answer choicesincreases the net fixed assets as shown on the balance sheet.reduces both the net fixed assets and the costs of a firm.decreases net income by less than $1 for every $1 of depreciation expense.decreases net fixed assets, net income, and operating cash flows.is a non-cash expense which increases the net operating income.
Question
Depreciation for a profitable firm:Group of answer choicesincreases the net fixed assets as shown on the balance sheet.reduces both the net fixed assets and the costs of a firm.decreases net income by less than 1 of depreciation expense.decreases net fixed assets, net income, and operating cash flows.is a non-cash expense which increases the net operating income.
Solution
Depreciation for a profitable firm decreases net fixed assets, net income, and operating cash flows.
Here's why:
-
Decreases Net Fixed Assets: Depreciation is the process of allocating the cost of a tangible asset over its useful life. As the asset is used over time, its value decreases, which is reflected as depreciation on the balance sheet. This reduces the value of net fixed assets.
-
Decreases Net Income: Depreciation is an expense, and like all expenses, it reduces the net income of a firm. When the depreciation expense is subtracted from the gross income of a firm, it reduces the net income.
-
Decreases Operating Cash Flows: While depreciation is a non-cash expense (meaning it doesn't involve an actual cash outflow), it impacts the operating cash flow indirectly. This is because operating cash flow is calculated by adjusting net income for non-cash expenses like depreciation and changes in working capital. So, a higher depreciation expense would lead to a lower operating cash flow.
Similar Questions
Depreciation is an accounting method used to:a.Calculate the net profit of a companyb.Determine the market value of assetsc.Allocate the cost of an asset over its useful lifed.Calculate the total liabilities of a company
Which of the following statements best describes the reason Depreciation Expense is added to net income when preparing the statement of cash flows?Multiple ChoiceDepreciation expense originally reduced net income, but it actually represents a cash inflow for the company.Depreciation expense originally reduced net income, but the expense does not involve a cash payment (outflow).Depreciation expense originally reduced net income, but it actually represents a cash outflow for the company.Depreciation expense is not included in net income, therefore, its cash effect must be accounted for separately.
Depreciation of the business is recorded in which of the following financial statement
Depreciation is the process of allocating the costs of the assets over their expected useful life. True False
Depreciation is generated due toGroup of answer choicesIncrease in the value of liabilityWear and tearDecrease in capitalDecrease in the value of assets
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.