Depreciation expenses affect tax-related cash flows by
A)increasing taxable income, thus increasing taxes.
B)decreasing taxable income, thus reducing taxes.
C)decreasing taxable income, but not altering cash flows since depreciation is not a cash expense.
D)All of the above

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense, meaning that it does not directly impact cash flows. However, by reducing taxable income, depreciation expenses can lower the amount of taxes that a company must pay, resulting in a reduction of tax-related cash outflows. Therefore, the correct answer is B.

Depreciation Expenses Affect Tax-Related Cash Flows by