Which one of the following statements regarding the effect of depreciation when reconciling net income to net cash provided by operating activities is correct?
A)Depreciation expense is a cash outflow.
B)Ignoring income tax effects, increasing depreciation expense will increase cash flows from operations.
C)Depreciation expense is added in the cash flow from operations section.
D)Depreciation expense is a source of cash.

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash expense, meaning it does not involve an actual outflow of cash. Therefore, it is added back to net income when reconciling net income to net cash provided by operating activities. This is done to adjust for the fact that depreciation reduces net income but does not reduce cash available for operations.

Which One of the Following Statements Regarding the Effect of Depreciation