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 is subtracted from net income because it causes a loss when the related plant asset is sold.
B) Depreciation expense is a non-cashnoncash expense that was subtracted to derive the accrual-basis net income,hence added to net income in the cash flows from operating activities section.
C) Depreciation is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset.
D) Depreciation adds to the company's cash account to help pay for new equipment.

Question

Quizplus · Accepted Answer

The calculation of accrual-based net income frequently includes noncash expenses such as depreciation expense.Since noncash expenses are deducted in determining net income,they must be added back to the amount of net income when computing net cash flow from operating activities.

Which of the Following Statements Best Explains the Correct Handling