When an asset impairment occurs without any cash outlay, which financial statement is affected directly?

• A. Balance sheet
• B. Income statement
• C. Cash flow statement
• D. Statement of changes in equity

Answer: (B)

When an asset is impaired without any cash being spent, you record an impairment loss. This loss is shown on the income statement as an expense, which reduces the period’s net income. Since net income drives the retained earnings in the equity section, the impairment indirectly lowers equity as well. The asset’s carrying amount on the balance sheet is reduced to reflect the impairment, but the entry that directly hits the statement is the impairment loss on the income statement. There’s no direct cash effect, so the cash flow statement isn’t affected by an outlay in this case (though non-cash items like impairment can be considered in cash flow reconciliations).