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Questions and Answers
What is depreciation in accounting?
What is depreciation in accounting?
- The process of recording profits from asset sales
- The allocation of the cost of an asset over its useful life (correct)
- The increase in value of an asset over time
- The process of selling off assets to reduce liabilities
Which method of depreciation assumes an equal reduction in the asset's value each year of its useful life?
Which method of depreciation assumes an equal reduction in the asset's value each year of its useful life?
- Sum-of-the-years'-digits depreciation
- Double-declining balance depreciation
- Units of production depreciation
- Straight-line depreciation (correct)
How does depreciation affect the financial statements?
How does depreciation affect the financial statements?
- It increases the value of assets on the balance sheet and increases net income on the income statement
- It reduces the value of assets on the balance sheet and decreases net income on the income statement (correct)
- It has no impact on the balance sheet but decreases net income on the income statement
- It has no impact on the income statement but decreases the value of assets on the balance sheet
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