Because depreciation expense reduces net income,companies will add depreciation expense back to net income as a step in arriving at net cash flows from operations under the indirect method.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense and therefore does not impact actual cash flows. Adding it back to net income is necessary to properly calculate net cash flows from operations under the indirect method.

Because Depreciation Expense Reduces Net Income,companies Will Add Depreciation Expense