When using the direct method to determine operating cash flows, how is depreciation expense recorded on the Statement of Cash Flows?
A)operating activity
B)investing activity
C)financing activity
D)noncash investing and financing activity
E)not reported on the statement of cash flows

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash charge and does not affect cash flow; therefore, it is not reported on the Statement of Cash Flows when using the direct method. The direct method focuses on the actual cash flows from operating activities, excluding non-cash items like depreciation.

When Using the Direct Method to Determine Operating Cash Flows