Why is depreciation expense added back to net income in the operating section of the indirect cash flow statement?
A)Depreciation expense represents cash outflows for a firm.
B)Depreciation expense represents cash inflows for a firm.
C)Depreciation expense represents a noncash expense that must be moved to the investing section of the cash flow statement.
D)Depreciation expense represents a noncash expense that must be added to net income to cancel its affect within the net income calculation.
E)Depreciation expense represents a cash expense that must be added to net income to cancel its affect within the net income calculation.

Question

Quizplus · Accepted Answer

Depreciation is a noncash expense because it represents the allocation of the cost of a fixed asset over its useful life. It does not involve actual cash outflows or inflows. Therefore, it is added back to net income in the operating section of the indirect cash flow statement to cancel its effect within the net income calculation and to reflect the cash generated or used by the company's operating activities.

Why Is Depreciation Expense Added Back to Net Income in the Operating