If a company fails to record depreciation on machinery, does it affect the income statement and balance sheet?
submitted by Lynn

Phribbles

Yes, not recording depreciation on equipment impacts both the income statement and the balance sheet. On the income statement, expenses will be understated, which will make your net income inflated. On the balance sheet, the book value of the machinery will be overstated too, because accumulated depreciation isn't subtracted from the asset's original cost. For a big piece of equipment, like machinery, that could change your financials considerably.

AwMan

Oh yeah. If a company doesn't record depreciation, its expenses are lower than they should be, so the net income will be higher on the income statement. On the balance sheet, the machinery will show a higher value than its actual worth because the accumulated depreciation isn't subtracted. So, both statements are affected because they show incorrect profit and asset values.