How does a decrease in depreciation affect the income statement?

A decrease in depreciation expense results in an increase in operating income because depreciation is a non-cash expense that reduces the reported earnings. When depreciation is lowered, less expense is recognized on the income statement, which means there is a higher amount left to contribute to operating income. Operating income is calculated as revenues minus operating expenses, and since depreciation is included in operating expenses, a reduction directly enhances operating income.

This increase aligns with the fundamentals of accounting, where lower expenses lead to higher net earnings before taxes. Although the net income will also see a similar increase due to the reduction in expenses, the focus here is on operating income specifically. Therefore, the correct understanding of how lower depreciation impacts the income statement highlights the improvement in operating income as expenses decrease.