In determining cash flows from operations under the indirect method, the adjustments to convert net income to cash flow from operations generally involve _____ the amount by which an expense exceeds the related cash expenditure for the period (for depreciation, the entire amount).
A)subtracting
B)multiplying
C)adding
D)dividing
E)cannot be determined from the information provided

Question

Quizplus · Accepted Answer

Depreciation expense does not involve an actual cash outflow, so when using the indirect method to calculate cash flows from operations, the amount of depreciation expense is added back to net income. This adjustment is necessary because net income includes non-cash expenses like depreciation, which need to be reversed to reflect the actual cash flow.

In Determining Cash Flows from Operations Under the Indirect Method