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

Question

Quizplus · Accepted Answer

The calculation of accrual-based net income frequently includes noncash expenses such as depreciation expense.Since noncash expenses are deducted in determining net income,they must be added back to the amount of net income when computing net cash flow from operating activities.

When Using the Indirect Method to Complete the Cash Flows