Where does depreciation typically appear on the Income Statement?

Depreciation is an important accounting concept that reflects the allocation of the cost of tangible assets over their useful life. On the Income Statement, depreciation can be presented in different ways depending on the accounting practices adopted by the entity and the nature of the expenses reported.

When depreciation appears as a separate line item, it provides clarity to users of the financial statements regarding the amount allocated for wear and tear of fixed assets. This transparency can be particularly useful for investors and analysts when assessing a company's financial health or comparing it with others in the industry.

Alternatively, depreciation can be embedded under operating expenses, which is a common practice. In this case, it is included in the total operating expenses that encompass costs associated with running the business, such as rents, utilities, and salaries, while still reflecting the expense associated with the use of long-term assets.

Another possibility is the presentation of depreciation under Cost of Goods Sold (COGS). This approach typically applies to manufacturing companies, where the depreciation of equipment directly involved in production is included in the costs directly related to the products sold.

The key takeaway is that depreciation can be displayed in multiple ways on the Income Statement according to the organization’s reporting practices, making it possible for it to appear as a separate line item, as