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How is depreciation expense classified on the statement of Cash flow

How is depreciation expense classified on the statement of Cash flow

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Answer #1
  • Generally, Depreciation expense is a ‘non cash’ item which means that no cash is paid or received as ‘depreciation expense’. Hence Depreciation expense does not affect cash flows.
  • You might be aware that there are two methods of preparing Statement of Cash Flows:

#1:Direct Method, where inflows and outflows of Cash are figured out and classified into 3 sections,
#2: Indirect Method, where under Operating Activities, Net Income is adjusted to find Cash flows from Operating activities.

  • If “Direct Method” Is used, Depreciation Expense IS NOT SHOWN at all in the statement of Cash Flows.
  • If “Indirect Method” is used, Depreciation expense is ADDED to Net Income under “Cash Flows from OPERATING ACTIVITIES” part.
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