Why do accountants add Depreciation Expense to net income when determining net cash provided by operating activities? Assume the indirect method is used.
A) because depreciation expense is a source of cash
B) because depreciation expense requires the outflow of cash
C) because depreciation expense is an investing activity that should be reported in the investing section of the cash flow statement
D) because it cancels the earlier deduction when calculating net income

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash charge that reduces net income but does not involve an actual cash outflow. When using the indirect method for the cash flow statement, adding back depreciation expense to net income adjusts for the fact that it was deducted earlier in the calculation of net income, even though it did not decrease cash.

Why Do Accountants Add Depreciation Expense to Net Income When