Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?
A)Depreciation expense is a noncash expense that is added to net income to derive cash flows from operating activities.
B)Depreciationexpense is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset.
C)Depreciationexpense is subtracted from net income because it causes a loss when the related plant asset is sold.
D)Depreciationexpense adds to the company's Cash account to help pay for new equipment.

Question

Quizplus · Accepted Answer

Depreciation expense is a noncash expense that is added to net income to derive cash flows from operating activities. This is because depreciation expense does not involve an actual outflow of cash, but it does impact the overall cash flow of the company.

Which of the Following Statements Best Explains the Correct Handling