What is the effect of depreciation on income statement?
submitted by junaid oluwaseun

25

Depreciation is a method of allocating the cost of a non-current asset over its useful life, in contrast to expensing the cost of the asset singly to the period it is bought/acquired. As such, depreciation decreases profit because it is an expense.

Suppose you buy a machine for 100,000, with 10 yrs useful life, after which it has no longer any salvage value.

Accountants, instead of recording the transaction as an expense only to the period where it pertains, would allocate the cost to the periods they will be useful. In this case, if the straight-line method will be used, the machine's cost will be expensed yearly for 10 yrs at 10,000 a year to provide a more reliable income statement

rizwan

It will result in decline in accounting profit. p

ashraf

Indirect expenses.

addisu fanossie

It would decrease net income.

Mansoor ul haq

On one hand it reduces the book value of assets. On other hand it increases your expense. Obviously, expenses decrease your net profit, which is stated in the income statement.

Suresh Goplani

Net income is decreased resulting in less capital amount to be carried forward.