In reconstructing an income/expense statement, what are depreciation and debt service classified as?

In reconstructing an income/expense statement, depreciation and debt service are best classified as necessary expenses. This aligns with their roles in financial assessments and property valuation.

Depreciation is a non-cash expense that reflects the reduction in value of a property over time due to wear and tear, which is important for accurate financial reporting and property valuation. It is a necessary consideration that impacts taxable income, and recognizing it helps to give a more realistic picture of the property's financial performance.

Debt service refers to the total amount of money required to cover the repayment of interest and principal on a loan. This expense is essential for owners to manage, as failing to meet debt obligations can lead to foreclosure or bankruptcy. Including debt service in an income/expense analysis is crucial for assessing the property's cash flow and financial stability.

Both depreciation and debt service play integral roles in understanding the financial viability and performance of an income-generating property, making them necessary expenses in the context of an income/expense statement.