What is the effect of recording depreciation on the final accounts?

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Q: What is the effect of recording depreciation on the final accounts?

Solution: Recording depreciation decreases net income as it is an expense.

Steps: 6

Step 1: Understand what depreciation is. Depreciation is the process of allocating the cost of a tangible asset over its useful life.
Step 2: Recognize that depreciation is considered an expense. When a business records depreciation, it is acknowledging that the asset has lost value over time.
Step 3: Know that expenses reduce net income. When you record an expense, it lowers the total profit of the business.
Step 4: See how this affects the final accounts. The final accounts include the income statement and balance sheet. Lower net income means less profit shown on the income statement.
Step 5: Understand the impact on taxes. Since net income is lower, the business may pay less in taxes because taxes are based on profit.
Step 6: Conclude that recording depreciation decreases net income and affects the overall financial picture of the business.