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)Depreciation is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset.
C)Depreciation is subtracted from net income because it causes a loss when the related plant asset is sold.
D)Depreciation adds to the company's Cash account to help pay for new equipment.

Question

Quizplus · Accepted Answer

Because depreciation expense reduces net income,but is a noncash expense,it is added to net income to arrive at cash flows from operating activities.

Which of the Following Statements Best Explains the Correct Handling