When preparing the statement of cash flows using the indirect method for determining net cash flows from operating activities, depreciation is added to net income because: a) It is a significant portion of the year's expenses. b) It was deducted as an expense on the income statement and affects the amount of cash. c) It represents a source or inflow of cash. d) It was deducted as an expense on the income statement, but does not require cash.

Question

Jaylene

Business

8 October, 14:54

When preparing the statement of cash flows using the indirect method for determining net cash flows from operating activities, depreciation is added to net income because: a) It is a significant portion of the year's expenses. b) It was deducted as an expense on the income statement and affects the amount of cash. c) It represents a source or inflow of cash. d) It was deducted as an expense on the income statement, but does not require cash.

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Answers (1)

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Lilia Murphy · Answer 1

The correct answer is d) It was deducted as an expense on the income statement, but does not require cash.

Explanation:

The indirect method involves the adjustment of net income with changes in balance sheet accounts to arrive at the amount of cash generated by operating activities.

It depends on the account if it is added or subtracted to net income. Depreciation is added to net income because it was deducted as an expense on the income statement, but does not require cash.