In preparing the statement of cash flows for Year 4, internal records indicate that depreciation on manufacturing facilities totaled $800.The firm included this amount in cost of goods sold in the income statement for Year 4.None of the of depreciation required an operating cash flow during Year 4.The T-account work sheet entry adds back the $800 of depreciation on manufacturing facilities.Accountants treat depreciation charges on manufacturing facilities as
A)a period expense.
B)an opportunity cost.
C)a product cost.
D)a cost of capital.
E)a marginal cost.

Question

Quizplus · Accepted Answer

Depreciation on manufacturing facilities is treated as a product cost because it is directly associated with the production process. It is included in the cost of goods sold as it reflects the wear and tear of the manufacturing facilities used in producing the goods sold during the year.

In Preparing the Statement of Cash Flows for Year 4