Question

Please answer this question for me. Depreciation B increases the net fixed assets as shown on...

Please answer this question for me.

Depreciation

B increases the net fixed assets as shown on the balance sheet.

C reduces both the net fixed assets and the costs of a firm.

D is a non-cash expense which reduces EBIT.

E decreases net fixed assets, net income, and operating cash flows.

  

Homework Answers

Answer #1

Depreciation is a measurement of decrease in recorded cost of a fixed asset during its useful life.

The fixed asset helps to generate revenue against this depreciation. Revenue needs to be recorded with associated expenses in the accounting period when the asset is in use. This assists to get revenue generation transactions complete.

Depreciation expense is reported in the income statement but there is no related cash payment during the period. Hence it is a non cash expenses. Being expense, depreciation is deducted from gross income before computation of taxes. Thus gross income or EBIT decreases.

Hence option “D. is a non-cash expense which reduces EBIT” is correct answer.

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