SAP Financial Accounting (SAP FI) Certified Application Associate Practice Exam

How does depreciation impact the year-end closing process?

1. It must be reviewed for accuracy.

2. It can be postponed indefinitely.

3. It alters the asset's initial acquisition cost.

4. It affects only external financial reports.

The correct answer is: It must be reviewed for accuracy.

Depreciation plays a significant role in the year-end closing process, primarily because it impacts the accuracy of financial statements. During the year-end closing, financial analysts need to ensure that all depreciation calculations are correct and that they reflect the true expense associated with long-term asset usage. Accurate depreciation recognition is crucial as it affects net income, tax liabilities, and the overall representation of a company's financial position. When depreciation is reviewed for accuracy, it ensures that the asset values in the balance sheet reflect the correct accumulated depreciation, which directly influences the book value of assets. This review process helps maintain the integrity of financial reporting, which is essential for stakeholders who rely on these reports for decision-making. The other options do not align as closely with the financial closing process. For example, postponing depreciation indefinitely would lead to a distortion of financial statements and could result in legal implications regarding compliance with accounting standards. Altering the asset's initial acquisition cost is not how depreciation functions; instead, it spreads the cost of the asset over its useful life. While depreciation does influence external financial reports, it also has internal implications that are vital to a complete and accurate financial analysis.