Which one of the following statements regarding the effect of depreciation when reconciling net income to net cash provided by operating activities is correct?
A) Depreciation expense is added in the cash flow from operations section.
B) Ignoring income tax effects, increasing depreciation expense will increase cash flows from operations.
C) Depreciation expense is a source of cash.
D) Depreciation expense is a cash outflow.

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash charge that reduces net income. When reconciling net income to net cash provided by operating activities, it is added back to net income because it does not involve an actual cash outflow.

Which One of the Following Statements Regarding the Effect of Depreciation