Depreciation expense is typically classified in financial statements as which of the following?

• A. Revenue
• B. General expense
• C. Cash outflow
• D. Other income

Answer: (B)

Depreciation is an accounting allocation of the cost of a long-term asset over its useful life. On the income statement it appears as an operating expense, typically shown as a depreciation line item or included with general and administrative expenses. It reduces reported net income, but it does not involve an actual cash outflow in the period it’s recorded (the cash outlay happened when the asset was purchased). In the cash flow statement, you’d add depreciation back to net income to reconcile to cash from operations. It is not revenue, not a cash outflow, and not other income (which would be gains or losses from non-operating activities). So the best classification is general expense.