What is the impact of depreciation on financial statements?
An example of an AI chatbot conversation about the effects of depreciation on financial reports.
What is the impact of depreciation on financial statements?
Depreciation affects financial statements by reducing the book value of assets and impacting net income.
Can you explain how it affects the balance sheet?
On the balance sheet, depreciation decreases the asset's value over time, reflecting its usage and wear.
What about its effect on the income statement?
On the income statement, depreciation is recorded as an expense, which reduces taxable income and net profit.
How does it influence cash flow?
Depreciation is a non-cash expense, so it doesn't directly affect cash flow, but it can lower taxable income.
Are there different methods of calculating depreciation?
Yes, common methods include straight-line, declining balance, and units of production, each affecting financials differently.
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