The recognition of depletion expense:
A) decreases assets and stockholders' equity and decreases cash flow from investing expenses under the direct approach.
B) decreases cash flow from operating activities, and does not affect the amount of total assets.
C) increases assets, stockholders' equity, and cash flow from operating activities.
D) decreases assets and stockholders' equity, and does not affect cash flow.

Question

Quizplus · Accepted Answer

Recognition of depletion expense decreases assets (by reducing the book value of the depleted natural resource) and stockholders' equity (through a reduction in net income, assuming the expense exceeds any related revenue for the period), but it does not directly affect cash flow since it is a non-cash expense.

The Recognition of Depletion Expense