In creating a statement of cash flows using the indirect method, which of the following statements is TRUE about depreciation expense?
A) It is added back as an adjustment to net income in the operating activities section.
B) It is shown as a negative cash flow in the investing activities section.
C) It is added back to purchases of plant assets under investing activities.
D) It is shown as a negative cash flow under operating activities.

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash item and is added back to net income in the operating activities section of the statement of cash flows using the indirect method. This is because depreciation reduces net income, but does not involve any cash flow.

In Creating a Statement of Cash Flows Using the Indirect