Which of the following describes the analytic process to determine the depreciation expense included in the forecasted statement of cash flows?
A) Depreciation is a non-cash expense, thus it is not included in the statement of cash flows.
B) The year-over-year change in property, plant and equipment on the balance sheet is equal to depreciation expense.
C) Property, plant, and equipment from the prior year multiplied by depreciation rate reported in the footnotes.
D) Gross property, plant, and equipment from the prior year + Capital expenditures - Forecasted gross property, plant, and equipment
E) None of the above

Question

Quizplus · Accepted Answer

Depreciation expense is indeed a non-cash charge, but it is considered in the cash flow statement through adjustments in the operating activities section to reconcile net income to net cash provided by operating activities. The year-over-year change in property, plant, and equipment does not equal depreciation expense because it also includes capital expenditures and disposals. Multiplying property, plant, and equipment by the depreciation rate or using gross property calculations as described does not directly determine the depreciation expense in the statement of cash flows context. The correct method involves adjusting net income for depreciation to reflect its non-cash nature, which is not explicitly described in the options provided.

Which of the Following Describes the Analytic Process to Determine