An accountant forgot to record depreciation of a newly purchased asset. How will this affect the...

An accountant forgot to record depreciation of a newly purchased asset. How will this affect the statement of cash flows and the retained earnings?

Expert Solution

Depreciation is a non cash expense and is not reported in the statement of cash flows. It is a deduction made to the current asset and expense is recognised because of the depletion of the asset held by the company. The estimate of amount of depreciation is subjective.

The statement of cash flows is not affected if the accountant forgets to record depreciation of a newly purchased asset as the cash flow statement only record cash transaction. Depreciation is a non cash expenditure and hence is not recorded and does not affect statement of cash flows.

Retained earnings is something that is not distributed to the shareholders and retained by the company for further usage. If if the company does not record depreciation for an asset the expenditure will reduce and the revenue will increase. This increase in revenue will be reflected on the retained earnings section and the retained earnings will increase.

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jeff jeffy answered 1 year ago

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