The statement of cash flows (indirect method)reports depreciation expense as an addition to profit because depreciation does which of the following?
A)causes an inflow of funds for the replacement of assets.
B)reduces reported profit of the period but does not involve an outflow of cash for that period.
C)is a direct use of cash.
D)reduces reported profit and causes an inflow of cash.

Question

Quizplus · Accepted Answer

Depreciation expense reduces reported profit of the period but does not involve an outflow of cash for that period. As a result, it is added back to profit in the statement of cash flows to adjust for the non-cash expense and show the actual cash flows generated or used by the company during the period.

The Statement of Cash Flows (Indirect Method)reports Depreciation Expense as an Addition