⟩ Suppose a company purchases a piece of new equipment. Explain the impact of the purchase on the income statement, balance sheet, and statement of cash flows?
At the time of the purchase, there is a cash outflow (cash flow statement) and PP&E goes up (balance sheet). Over the life of the asset it is depreciated. This shows up a reduction in net income (income statement) and PP&E (balance sheet) decreases by the amount depreciated. At the same time retained earnings (balance sheet) also goes down. However, the depreciation is added back in the cash from operations section (cash flow statement) as it is a non-camsh expense the reduced net income.
