A company that forgets to recognize depreciation for the year overstates its income and assets.

Question

Quizplus · Accepted Answer

Depreciation is the process of allocating the cost of a fixed asset over its useful life. Failure to recognize depreciation would result in an overstatement of income because the company is not taking into account the cost of using the fixed asset over time. Additionally, the assets on the balance sheet would also be overstated since the cost of the fixed asset is not being reduced to reflect its use and wear over time.

A Company That Forgets to Recognize Depreciation for the Year