If a company uses the indirect method to prepare the statement of cash flows, how can depreciation be presented on the statement of cash flows?
A)Depreciation expense can be added to net income in the financing activities section on the statement of cash flows.
B)Depreciation expense can be subtracted from net income in the operating section on the statement of cash flows.
C)Depreciation expense can be added to net income in the investing activities section on the statement of cash flows.
D)Depreciation expense can be added to net income in the operating activities section on the statement of cash flows.

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash charge that reduces net income but does not affect cash flow. In the indirect method of preparing the statement of cash flows, it is added back to net income in the operating activities section to adjust for the fact that it does not consume cash.

If a Company Uses the Indirect Method to Prepare the Statement