The use of accelerated versus straight-line depreciation causes net income reported to stockholders to be lower, and cash flows higher, during every year of a project's life, other things held constant.

Question

Quizplus · Accepted Answer

Accelerated depreciation results in lower net income in the early years of an asset's life due to higher depreciation expense, but it does not directly affect cash flows since depreciation is a non-cash expense. Over the entire life of the project, total depreciation and thus the total impact on net income and cash flows (through tax effects) are the same; only the timing differs.

The Use of Accelerated Versus Straight-Line Depreciation Causes Net Income