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Does depreciation expense accounts in cash flow statement but not income statement? And whether capitalizing R&D...

Does depreciation expense accounts in cash flow statement but not income statement?

And whether capitalizing R&D expense will affect on free cash flow to the firm?

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Answer #1

Depreciation expense is adjusted (added) to balance in profit and loss account under the head cash flow from operating activities in cash flow statement. Depreciation is added to balance in profit and loss account because it is a non cash expense. Whereas in income statement is treated as expense and reduced from the income. Therefore depreciation expense will be found in both income statement and cash flow statement.

Capitalising R&D expense will have no effect on free cash flow to the firm. If only R&D expense is shown as expense in income statement it will be shown as deduction from cash flow from operating activities.

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