Question

Using the indirect method of presenting net cash flow from operating activities, depreciation expense is added to net income because

A. it represents a cash inflow from the firm’s operating activities.

B. it is a non-cash expense that was deducted in determining net income.

C. it is similar to other operating expenses that are paid in cash during the period.

D. it does not represent one of the firm’s operating expenses.

E. None of the above.

Answer 1

Correct Answer: Option B It is a non-cash expense that was deducted in determining net income.

Reason: Depreciation is a non cash expenditure, it is the value of Asset that gets used during the year . it is calculated and charged as an expense while calculating the Net Income. however, while calculating Cash-flow statement only those transactions are recorded which are made in Cash. and hence Depreciation expense is written back.

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