Which one of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT (Operating Income)?

Question

Quizplus · Accepted Answer

Depreciation expense is subtracted from total revenues to help arrive at a firm's EBIT (Operating Income) because it is a non-cash expense that reflects the decrease in value of an asset over time due to wear and tear or obsolescence. This reduces the taxable income and increases the cash flow available for operations, investments, and financing. Cash dividends, interest expense, and tax liability are not subtracted from total revenues to calculate EBIT, but they may affect the net income and cash flows of the firm.

Which One of the Following Expense Categories Is Subtracted from Total