In financial accounting, amortization expense for intangible assets is reported on which financial statement?

• A. Balance sheet only, as a direct reduction of the intangible asset account
• B. Statement of cash flows only, as an operating cash outflow
• C. Income statement (statement of earnings)
• D. Statement of changes in equity, as a reduction of retained earnings without affecting net income

Answer: (C)

Verified step by step guidance

1. Understand that amortization expense represents the systematic allocation of the cost of an intangible asset over its useful life.
2. Recall that expenses, including amortization expense, are reported on the Income Statement (also called the Statement of Earnings) because they reduce net income for the period.
3. Recognize that on the Balance Sheet, the intangible asset is reported at its net book value, which is the original cost less accumulated amortization, but the amortization expense itself is not directly shown there.
4. Note that the Statement of Cash Flows reports cash transactions, and amortization is a non-cash expense, so it appears as an adjustment in operating activities rather than a direct cash outflow.
5. Understand that the Statement of Changes in Equity reflects changes in equity accounts like retained earnings, but amortization expense affects retained earnings indirectly through net income, not as a direct entry.