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Currently Digby is charged $6,664,000 Depreciation on the Income Statment. Digby is planning for an increase...

Currently Digby is charged $6,664,000 Depreciation on the Income Statment. Digby is planning for an increase in this depreciation. What will this do on Digby 's financial statements?

Increase Net Cash From Operations on the Cash Flow Statment

Just impact the Balance Sheet Statement

Decrease Net Cash from Operations on the Cash Flow Statment

Have no impact on the Net Cash from Operations as Depreciation appears in both the Cash Flow Statement and the Income Statement

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Homework Answers

Answer #1
  • The correct answer is Option #2: It will “just impact the Balance Sheet Statement” because none of the other options are correct.
    Also, increase in Depreciation = Increase in Accumulated Depreciation on Balance Sheet. Hence Balance Sheet will be affected.
    Net Income will also be affected by the amount of increased Depreciation expense.
  • However, such increasewill not impact Net cash flows from operations on CFS, because Depreciation is a NON CASH item and does not affects Cash Flows. This makes all the other options [except #2] Invalid and incorrect.
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