Depreciation:
A) is not an allowance for the consumption of capital.
B) is not a legitimate cash flow.
C) does not act as a tax shield.
D) does not consider the salvage value of an item.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense, meaning it reduces the reported earnings of the company without any actual cash outflow, thus it is not a legitimate cash flow. It is, however, an allowance for the consumption of capital, acts as a tax shield by reducing taxable income, and typically considers the salvage value of an item in its calculation.