Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

8. Long Lived Assets

Depreciation: Summary of Main Methods

Financial Accounting

8. Long Lived Assets

Depreciation: Summary of Main Methods

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Multiple Choice

How does depreciation affect the calculation of a project's payback period?

Depreciation is included in the payback period calculation as a cash outflow.

Depreciation shortens the payback period by increasing cash flows.

Depreciation increases the payback period by reducing net income.

Depreciation does not affect the payback period because it is a non-cash expense.

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Verified step by step guidance

Understand the concept of depreciation: Depreciation is the allocation of the cost of a tangible asset over its useful life. It is a non-cash expense, meaning it does not involve actual cash outflows.

Review the payback period calculation: The payback period measures the time it takes for a project to recover its initial investment through cash inflows. It focuses solely on cash flows, not accounting expenses like depreciation.

Clarify why depreciation does not affect cash flows: Since depreciation is a non-cash expense, it does not directly impact the cash inflows or outflows of a project. Therefore, it does not influence the payback period calculation.

Identify common misconceptions: Some may mistakenly believe depreciation affects the payback period by altering net income or cash flows. However, net income adjustments due to depreciation do not translate into changes in actual cash flows.

Conclude the correct understanding: Depreciation does not affect the payback period because the calculation is based on cash inflows, and depreciation is excluded as it is a non-cash expense.