Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?
A)Depreciation expense is subtracted from net income because it causes a loss when the related plant asset is sold.
B)Depreciation expense is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset.
C)Depreciation expense is a non-cash expense that is added to net income to derive cash flows from operating activities.
D)Depreciation expense adds to the company's Cash account to help pay for new equipment.

Question

Quizplus · Accepted Answer

Because depreciation expense reduces net income, but does not use cash for operating activities, it is added to net income to arrive at cash flows from operating activities.

Which of the Following Statements Best Explains the Correct Handling