What is the effect of using an accelerated depreciation method on financial statements?
Practice Questions
1 question
Q1
What is the effect of using an accelerated depreciation method on financial statements?
Higher net income in early years
Lower net income in early years
No effect on net income
Higher cash flow in early years
Using an accelerated depreciation method results in lower net income in the early years due to higher depreciation expenses.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the effect of using an accelerated depreciation method on financial statements?
Solution: Using an accelerated depreciation method results in lower net income in the early years due to higher depreciation expenses.
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 early years.
Step 4: Realize that higher depreciation expenses lead to lower net income on the financial statements during those early years.
Step 5: Note that in later years, the depreciation expense will be lower, which can result in higher net income in those years.
