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How does £10 increase in depreciation expense flow through the three financial statements❓

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How does £10 increase in depreciation expense flow through the three financial statements


🧾 Income Statement:

A £10 increase in dep expense should decrease net income by £10.

But hang on ✋

If we take taxes into consideration then @20% tax rate .. increase of £10 dep expense will reduce the tax bill by £2 so..

Net Income will reduce by £8.

🧾 Balance Sheet

On Assets: 📠

PP&E will reduce by a further £10

Cash will go up by £2 given lower cash taxes

So total assets = -£8

On Liabilities: 🎰

Net income will be lower by £8 reducing retained earnings under Equity by £8

🧾 Cash Flow Statement:

Lower Net Income of £8

Higher D&A expenses of £10 will be added back to CFO given D&A is non-nash expense.

On a net basis, CFO will be higher by £2.


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