Question

Which of the following statements about depreciation expense is/are correct?

a. Depreciation expense has no impact on a company's net income.
b. None of the other answers is correct.
c. Depreciation expense has no impact on a company's cash balance.
d. Depreciation expense is not subject to any uncertainty.

Answer 1

Depreciation expense is a non-cash expense that reduces the value of an asset on the balance sheet and reduces net income on the income statement. However, it does not affect a company's cash balance.

Step-by-step explanation:

c. Depreciation expense has no impact on a company's cash balance.

Depreciation expense is the allocation of the cost of an asset over its useful life. It is a non-cash expense that reduces the value of an asset on the balance sheet and reduces net income on the income statement. However, it does not affect a company's cash balance since it does not involve any actual cash outflows.

For example, if a company owns a machine with a useful life of 10 years, it can allocate the cost of the machine evenly over those 10 years as depreciation expense. This reduces the value of the machine on the balance sheet each year and reduces net income on the income statement, but it does not impact the company's cash balance.