When preparing the statement of cash flows using the indirect method for determining net cash flows from operating activities, depreciation is added to net income because:
A) It was deducted as an expense on the income statement, but does not require cash.
B) It was deducted as an expense on the income statement and affects the amount of cash.
C) It is a significant portion of the year's expenses.
D) It represents a source or inflow of cash.

Question

Quizplus · Accepted Answer

Depreciation is added back to net income in the cash flow statement because it is a non-cash expense that was subtracted from net income on the income statement. This adjustment is necessary to accurately reflect the cash generated from operating activities.

When Preparing the Statement of Cash Flows Using the Indirect