What is the effect of not recording depreciation on financial statements?

What is the effect of not recording depreciation on financial statements?

Step 1: Understand what depreciation is. Depreciation is the process of allocating the cost of a tangible asset over its useful life.
Step 2: Know that businesses own assets like buildings, machinery, and vehicles that lose value over time.
Step 3: Realize that recording depreciation helps show the true value of these assets on financial statements.
Step 4: If a business does not record depreciation, it means they are not accounting for the loss in value of their assets.
Step 5: This leads to an inflated or overstated value of assets on the balance sheet, making the company appear more valuable than it actually is.
Step 6: Overstating asset value can mislead investors, creditors, and other stakeholders about the company's financial health.

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