Depreciation on the income statement is reported as what kind of expense?

Depreciation on the income statement is reported as what kind of expense?

• A. As a cash expense that reduces net income by the full cost in year one
• B. As a non-cash expense that reduces net income by the annual depreciation amount
• C. As a cash expense that reduces net income by the annual depreciation amount
• D. As a non-cash expense that reduces net income by $2,520 every year for 10 years

Answer: (D)

Depreciation is a non-cash expense that allocates the cost of a tangible asset over its useful life. It reduces net income each year by the depreciation amount, but it does not involve a cash outlay in that period—the cash was spent when the asset was purchased, not when depreciation is recorded. In this example, the asset is depreciated by 2,520 each year for 10 years, so net income is reduced by 2,520 annually for that decade. The cash flow effect isn’t in these yearly entries; it’s in the initial purchase. The other options describe depreciation as a cash expense or omit the specific annual amount and horizon, which isn’t accurate for how depreciation behaves on financial statements.

Depreciation is a non-cash expense that allocates the cost of a tangible asset over its useful life. It reduces net income each year by the depreciation amount, but it does not involve a cash outlay in that period—the cash was spent when the asset was purchased, not when depreciation is recorded. In this example, the asset is depreciated by 2,520 each year for 10 years, so net income is reduced by 2,520 annually for that decade. The cash flow effect isn’t in these yearly entries; it’s in the initial purchase.

The other options describe depreciation as a cash expense or omit the specific annual amount and horizon, which isn’t accurate for how depreciation behaves on financial statements.