When preparing the statement of cash flow using the indirect method,Depreciation Expense is:
A)added back to net income under the operating activities section.
B)subtracted from net income under the operating activities section.
C)subtracted net income under the financing activities section.
D)added back to net income under the financing activities section.

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.

When Preparing the Statement of Cash Flow Using the Indirect