On a statement of cash flows that uses the indirect approach, calculation of cash flow from operations treats depreciation as an adjustment to reported net income because:
A)depreciation is a direct source of cash.
B)depreciation is an outflow of cash to a reserve account for the replacement of assets.
C)depreciation reduces net income and involves an outflow of cash.
D)depreciation reduces net income but does not involve an outflow of cash.

Question

Quizplus · Accepted Answer

Depreciation reduces net income but does not involve an outflow of cash. This is why it is added back to net income when calculating cash flow from operations using the indirect approach.

On a Statement of Cash Flows That Uses the Indirect