Under the indirect method, Depreciation Expense must be added to net income when computing cash from operating activities.

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash expense, meaning it does not involve any outflow of cash. Therefore, under the indirect method of cash flow statement preparation, it is added back to net income to adjust for this non-cash expense and calculate the cash generated from operating activities.

Under the Indirect Method, Depreciation Expense Must Be Added to Net