As seen on an income statement:
A) interest is deducted from income and increases the total taxes incurred.
B) the tax rate is applied to the earnings before interest and taxes when the firm has both depreciation and interest expenses.
C) depreciation is shown as an expense but does not affect the taxes payable.
D) depreciation reduces both the pretax income and the net income.
E) interest expense is added to earnings before interest and taxes to get pretax incomE.

Question

Quizplus · Accepted Answer

Depreciation reduces both the pretax income and the net income. It is shown as an expense on the income statement but is a non-cash expense, meaning it does not involve a cash outflow. Since taxes are calculated based on income, a lower income due to depreciation will result in lower taxes payable.

As Seen on an Income Statement