Which of the following is true of depreciation?
A)It is recorded so that net book value represents fair value of assets.
B)It does not affect the amount of cash realized from operations as it is a noncash flow.
C)It is added back to net income to calculate cash from operations under the direct method.
D)It represents a fund from which to purchase future assets.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense, meaning it reduces the reported earnings without affecting the cash flow. This is because depreciation spreads the cost of a tangible asset over its useful life, reflecting the decrease in value of the asset over time due to use and wear and tear, but does not involve an actual outlay of cash during the period it is recorded.

Which of the Following Is True of Depreciation