Which of the following statements about depreciation is correct
A) Each year the accountant adds an amount for depreciation when calculating the company's profit.
B) The annual depreciation charge measures the cash that the company has spent on maintaining and renewing its plant and equipment.
C) To calculate the cash produced by the business, it is necessary to deduct the depreciation charge from accounting profits.
D) To calculate the cash produced by the business, it is necessary to add the depreciation charge back to accounting profits.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense that is subtracted from revenue to calculate accounting profit. However, it does not represent an actual cash outflow, so to calculate the cash produced by the business, it is necessary to add back the depreciation charge to accounting profits.

Which of the Following Statements About Depreciation Is Correct