What is the effect on a company's balance sheet equation when depreciation expense is recognized?
A)This transaction affects only the income statement,so no change on the balance sheet will occur.
B)Total assets and total stockholders' equity will decrease by the same amount.
C)There will be no change in the total assets,liabilities,and stockholders' equity account.
D)Total liabilities will increase and total stockholders' equity will decrease by the same amount.
E)Without knowing the exact dollar amount of depreciation,the effect on the balance sheet cannot be determined.

Question

Quizplus · Accepted Answer

Depreciation expense reduces the book value of assets (thus decreasing total assets) and reduces net income, which in turn reduces retained earnings (a component of stockholders' equity), leading to a decrease in total stockholders' equity by the same amount.

What Is the Effect on a Company's Balance Sheet Equation