Depreciation expense is located on the income statement. Here's why:
1. **Depreciation Expense:** Depreciation is the allocation of the cost of a tangible asset over its useful life. It reflects the decrease in value of the asset over time due to wear and tear, obsolescence, or other factors.
2. **Income Statement:** The income statement, also known as the statement of profit and loss, shows a company's revenues, expenses, and net income over a specific period. Depreciation expense is categorized as a non-cash expense on the income statement because it doesn't involve actual cash outflow.
3. **Impact on Net Income:** By including depreciation expense on the income statement, a company can spread out the cost of an asset over its useful life. This allocation reduces the net income reported, which reflects a more accurate representation of the company's profitability by accounting for the asset's gradual consumption.
In conclusion, depreciation expense is crucial for companies to accurately reflect the cost of using their assets over time on the income statement, impacting the reported profitability and financial health of the business.
