Walk me through how $10 of Depreciation affects the three financial statements

Income Statement

Depreciation is an expense so operating income (EBIT) declines by $10. Assuming a tax rate of 40%, net income declines by $6.

Cash Flow Statement

Net Income decreased $6 and depreciation increased $10 so cash flow from operations increased $4.

Balance Sheet

Cumulative depreciation increases $10 so Net PP&E decreases $10. We know from the cash flow statement that cash increased $4. The $6 reduction of net income caused retained earnings to decrease by $6.

Note that the balance sheet is now balanced. Assets decreased $6 (PP&E -10 and Cash +4) and shareholder’s equity decreased $6.

‍

‍