When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows, what is the proper disposition of depreciation expense?
A)Add depreciation expense to net income.
B)Subtract depreciation expense from net income.
C)Disregard depreciation expense because it relates to an investing activity.
D)Disregard depreciation expense because it is a non-cash expense.

Question

Quizplus · Accepted Answer

Because depreciation expense reduces net income, but does not use cash for operating activities, it is added back to net income to arrive at cash flows from operating activities.

When Using the Indirect Method to Complete the Cash Flows