Depreciation on machinery is described as:

Depreciation on machinery is described as:

• A. Included on the accrual income statement but not on the cash income statement
• B. Included on the cash income statement only
• C. Not included on any income statement
• D. Included on both accrual and cash income statements

Answer: (A)

Depreciation is a non-cash expense that spreads the cost of machinery over its useful life. In accrual accounting, expenses are recognized when incurred, not when cash moves, so depreciation appears on the income statement each period and reduces profit. In cash accounting, only actual cash transactions are recorded on the income statement, so there is no depreciation entry there; the cash outlay to buy the machine shows up as a cash outflow, not as an expense. So, depreciation is described as being included on the accrual income statement but not on the cash income statement. The other statements don’t fit because depreciation isn’t shown in cash basis income statements, isn’t entirely absent from income statements, and isn’t shown on both.

Depreciation is a non-cash expense that spreads the cost of machinery over its useful life. In accrual accounting, expenses are recognized when incurred, not when cash moves, so depreciation appears on the income statement each period and reduces profit. In cash accounting, only actual cash transactions are recorded on the income statement, so there is no depreciation entry there; the cash outlay to buy the machine shows up as a cash outflow, not as an expense.

So, depreciation is described as being included on the accrual income statement but not on the cash income statement. The other statements don’t fit because depreciation isn’t shown in cash basis income statements, isn’t entirely absent from income statements, and isn’t shown on both.