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) Is a direct use of cash.
C) Reduces reported profit of the period but does not involve an outflow of cash for that period.
D) Reduces reported profit and causes an inflow of cash.

Question

Quizplus · Accepted Answer

Depreciation reduces reported profit of the period but does not involve an outflow of cash for that period. Therefore, it is added back to the net income in the statement of cash flows to reconcile the difference between net income and cash flow from operating activities.

The Statement of Cash Flows (Indirect Method) Reports Depreciation Expense