why does depreciation reduce net income
A depreciation expense has a direct effect on the profit that appears on a company's income statement. The larger the depreciation expense in a given year, the lower the company's reported net income -- its profit.However, because depreciation is a non-cash expense, the expense doesn't change the company's cash flow.he larger the depreciation expense in a given year, the lower the company's reported net income -- its profit. However, because depreciation is a non-cash expense, the expense doesn't change the company's cash flow.