The recognition of depletion expense acts to
A) decrease assets and equity and increase cash flow from operating expenses.
B) increase cash flow from operating activities and does not affect the amount of total assets.
C) increase assets, equity, and cash flow from operating activities.
D) decrease assets and equity, with no effect on cash flow.

Question

Quizplus · Accepted Answer

Depletion expense is a non-cash expense that represents the periodic use of natural resources, such as oil reserves or timberland. The recognition of depletion expense reduces the carrying value of the natural resource asset and reduces equity. However, it does not affect cash flow from operating activities, as it is a non-cash expense. Therefore, the best answer is D, which states that the recognition of depletion expense decreases assets and equity, with no effect on cash flow.

The Recognition of Depletion Expense Acts to