If depreciation increases by $10 then let's start with the balance sheet. In the balance sheet your capital assets will reduce by $10. That is because depreciation is nothing but reducing the value of you capital assets, you capital expenditure year by year. So, if you are increasing the depreciation by $10 then your capital assets in your balance sheet will decrease by the proportional $10. Now number 2- your income statement. In your income statement, depreciation is an operating expense. Hence, if depreciation increases by $10, then your operating expense will increase by $10, which means your operating income and, subsequently, your net income will decrease by $10. Number 3 - your cash flow statement. In your cash flow statement depreciation is what is called a non-cash expense. So, in your cash flow statement depreciation is subtracted, because it is a non-cash expense. Hence, if depreciation increases by $10, then your cash flow will also increase by that $10, because that extra $10 has been subtracted in your income statement as an expense but it is added back in your cash flow statement, since it is not a cash expense. So, your overall cash flow will increase by $10.
Nov 01 2013 10:42 AM
