Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:
A)reduces net income but not cash.
B)is a cash inflow.
C)is a revenue.
D)is a valuation concept.

Question

Quizplus · Accepted Answer

When initially recording depreciation in the accounting system,we increase Depreciation Expense (with a debit)and increase Accumulated Depreciation (with a credit).Notice that depreciation does not involve cash.To eliminate the effect of having deducted Depreciation Expense in the income statement,we add it back in the statement of cash flows.

Depreciation Is Added Back to Net Income in a Statement