The recognition of depreciation expense often causes the annual net income of an investment to be less than the amount of its annual net cash flows.

Question

Quizplus · Accepted Answer

This is true because depreciation expense is a non-cash expense that reduces the book value of an asset over its useful life, but does not involve an actual outflow of cash. As a result, the annual net income is reduced by the depreciation expense, but the actual cash flows received from the investment may be higher due to the absence of this non-cash expense.

The Recognition of Depreciation Expense Often Causes the Annual Net