Salem,Inc.uses the indirect method to prepare its statement of cash flows.Salem's Accumulated Depreciation-Trucks account increased during the period.Salem did not purchase or sell trucks during the period.The increase in Accumulated Depreciation-Trucks is:
A)subtracted from net income to determine net cash provided by operating activities.
B)added to net income to determine net cash provided by operating activities.
C)shown as a cash outflow on the investing activities section.
D)shown as a cash outflow on the financing activities section.

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense that reduces net income but does not affect cash flow. When using the indirect method for the statement of cash flows, an increase in accumulated depreciation is added back to net income to adjust for the non-cash effect and determine net cash provided by operating activities.

Salem,IncUses the Indirect Method to Prepare Its Statement of Cash