What is the effect of using an accelerated depreciation method on a company's financial statements?
Practice Questions
1 question
Q1
What is the effect of using an accelerated depreciation method on a company's financial statements?
Higher net income in early years
Lower net income in early years
No effect on cash flow
Higher asset value on balance sheet
Using an accelerated depreciation method results in higher depreciation expenses in the early years, leading to lower net income during those years.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the effect of using an accelerated depreciation method on a company's financial statements?
Solution: Using an accelerated depreciation method results in higher depreciation expenses in the early years, leading to lower net income during those years.
Steps: 5
Step 1: Understand what depreciation is. Depreciation is the process of allocating the cost of a tangible asset over its useful life.
Step 2: Learn about accelerated depreciation methods. These methods allow a company to write off more of an asset's cost in the early years of its life.
Step 3: Recognize that using an accelerated depreciation method increases depreciation expenses in the first few years.
Step 4: Realize that higher depreciation expenses reduce the company's net income during those early years.
Step 5: Understand that lower net income can affect financial statements, such as the income statement and balance sheet.
