How Depreciation Is Presented Across Income Statement Expense Lines
Summary
The document explains why a company’s income statement may not show depreciation and amortization as a separate line even when the cash flow statement reports it. The proposed explanation is that depreciation is often allocated among operating expense categories according to what the underlying assets support.
Depreciation tied to manufacturing or production may be included in cost of goods sold, while depreciation associated with general overhead may appear in selling, general, and administrative expenses. This presentation means the expense can affect operating income without appearing under its own label. The answer is a plausible interpretation of the described statements, not a confirmed reading of a particular company’s filings; the text notes that footnotes may not identify the exact allocation. It gives no method for estimating the amount in each line item.
Key ideas
- Depreciation and amortization may be embedded in operating expense categories instead of shown separately.
- Production-related depreciation may be included in cost of goods sold.
- Depreciation related to overhead may be included in selling, general, and administrative expenses.
- The exact allocation for a company may not be identifiable from the cited statement or notes alone.
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Full text
# Why does depreciation not show up in my income statement? # Why does depreciation not show up in my income statement? I'm looking at a company's 10-K which gives me the following line items: Income statement - Net sales - Cost of goods sold - Gross profit - Selling, general and administrative expenses - Operating income - Other income (loss) - Income before income taxes - Income tax expense - Net income Why is there no Depreciation expense line item on this income statement? I thought typically Income before tax was calculated over the operating income less interest and depreciation. On the cash flow statement it does give a Depreciation expense line item. Any suggestions? Also what if the notes to Financial Notes do not really indicate which IS line item is tied to to D&A expense? ## Answer by MGL (score 3, accepted) https://quant.stackexchange.com/a/31128 Here the depreciation & amortization expenses are not just displayed as separate items. Rather, they are probably in this case included in Selling, general and administrative expenses, as well as Cost of goods sold -items. One of the possible reasons for not displaying depreciation as a separate item could be that it is natural to allocate the depreciation to different items. In this case some of the depreciation could be directly related to producing the products (thus attributable to COGS), while some of the depreciation might have more to do with general overhead (and thus included in Selling, general and administrative expenses).
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.