Where does Depreciation usually appear on the Income Statement?

Where does Depreciation usually appear on the Income Statement?

• A. It could be in a separate line item, or it could be embedded in Cost of Goods Sold or Operating Expenses - each company does it differently.
• B. It increases Pre-Tax Income.
• C. It is recorded as a cash outflow.
• D. It appears only in the Balance Sheet.

Answer: (A)

Depreciation is a non-cash expense used to allocate the cost of a tangible asset over its useful life. On the income statement, it appears as an expense, and where it shows up can vary: it may be a separate line item called depreciation expense, or it can be embedded within either cost of goods sold or operating expenses depending on how the company organizes its presentation. Because it's an expense, depreciation reduces pre-tax income (and thus net income). It isn't a cash outflow in the period it’s recorded—the cash outlay happened when the asset was purchased. The cash effect is reflected in the cash flow statement, while on the balance sheet it shows up as accumulated depreciation, reducing the asset’s book value.

Depreciation is a non-cash expense used to allocate the cost of a tangible asset over its useful life. On the income statement, it appears as an expense, and where it shows up can vary: it may be a separate line item called depreciation expense, or it can be embedded within either cost of goods sold or operating expenses depending on how the company organizes its presentation. Because it's an expense, depreciation reduces pre-tax income (and thus net income). It isn't a cash outflow in the period it’s recorded—the cash outlay happened when the asset was purchased. The cash effect is reflected in the cash flow statement, while on the balance sheet it shows up as accumulated depreciation, reducing the asset’s book value.