Depreciation must be added to the cash flow in each year to calculate taxes for that year, but then must be subtracted because it is not actually a cash flow in that year.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense and does not directly affect cash flow; it is subtracted to calculate taxable income, thereby reducing the tax payment, but it is not added back to cash flow for tax calculation purposes. It is added back in the calculation of cash flow from operations in the indirect method of cash flow statement preparation because it was deducted from net income.

Depreciation Must Be Added to the Cash Flow in Each