Question

A depreciation expense is _____ to calculate net cash from operating activities using the indirect method...

A depreciation expense is _____ to calculate net cash from operating activities using the indirect method

A. deducted from gross income

B. added to net income

C. deducted from tax expense

D. added to selling expense

Business   Accounting   
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Answer #1

As under indirect method the starting point of the cash flow is the net income which is calculated after deducting the depreciation expense but the depreciation is not a cash item and therefore it is to be added back to the net income in order to calculate the cash flow from operating activities.

Therefore a depreciation expense is added to net income to calculate net cash flow from operating activities using the indirect method.

So the correct option is B

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