Question

How is net cash flow calculated if depreciation is the only noncash item in a firm's income statement?​

Select one:

a. ​Net cash flow = Net income + Depreciation and amortization

b. ​Net cash flow = Accounting profit - Depreciation and amortization

c. Net cash flow = Accounting profit - Operating cash flow

d. ​Net cash flow = Fixed assets + Depreciation and amortization

e. ​Net cash flow = Operating cash flow - Depreciation and amortization

Answer 1

Ans:

Correct Option a) Net Cash flow = Net income + Depreciation and amortisiation

Explanation:

For the purpose of prepare of Cash flow statements first we take the net income and add the non cash items, here only one non cash item is there i.e.Depreciation so we added.

Why we have to consider this, while preparing the Income statement we will take the depreciation and arrive Net profit, but pertaining depreciation cash will not go out from Firm. So for the calculation of Net cash flow we have to add depreciation.