Which action decreases one asset and equity by the same amount?

Which action decreases one asset and equity by the same amount?

• A. Purchasing property and equipment with credit.
• B. Purchasing property and equipment with cash.
• C. Selling property and equipment for cash
• D. Depreciating property and equipment.

Answer: (D)

Depreciation ties directly to both the balance sheet and the income statement. When you record depreciation, you decrease the net book value of property and equipment on the balance sheet by increasing accumulated depreciation (a contra-asset). This lowers total assets by the depreciation amount. At the same time, depreciation is an operating expense on the income statement, which reduces net income and, consequently, retained earnings, a component of stockholders’ equity. So the same amount reduces one asset (net PPE) and reduces equity (via lower retained earnings). The other actions don’t produce that pair of equal, opposite effects on assets and equity in the same way.

Depreciation ties directly to both the balance sheet and the income statement. When you record depreciation, you decrease the net book value of property and equipment on the balance sheet by increasing accumulated depreciation (a contra-asset). This lowers total assets by the depreciation amount. At the same time, depreciation is an operating expense on the income statement, which reduces net income and, consequently, retained earnings, a component of stockholders’ equity. So the same amount reduces one asset (net PPE) and reduces equity (via lower retained earnings). The other actions don’t produce that pair of equal, opposite effects on assets and equity in the same way.