Which of the following statements about depreciation is correct?
A) Depreciation is subtracted from cost of goods sold to calculate net income.
B) When depreciation expense is incurred, cash balances are reduced.
C) Depreciation expense does not affect net income.
D) Depreciation reduces the book value of assets.

Question

Quizplus · Accepted Answer

Depreciation reduces the book value of assets, which is the value of the asset on the company's balance sheet. It is a non-cash expense, meaning it does not affect cash balances or directly impact net income. However, it does indirectly affect net income through its impact on the asset's value and the related calculations such as depreciation tax deductions. It is not subtracted from cost of goods sold.

Which of the Following Statements About Depreciation Is Correct