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

Question

Quizplus · Accepted Answer

Depreciation expense reduces the reported profit of the period but does not involve an actual outflow of cash. It is a non-cash expense, so it is added back to net income in the operating activities section of the statement of cash flows when using the indirect method.

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