Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 47 - No. 6)
What is the effect of depreciation expense on the accounting equation?
Assets increase, liabilities increase.
Assets decrease, liabilities increase.
Assets decrease, equity decreases.
Assets increase, equity increases.
Explanation
Depreciation expense reduces the value of assets (through accumulated depreciation, a contra-asset) and reduces net income, thus decreasing equity.
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