In the statement of cash flows, depreciation is included in the statement of cash flows as:Group of answer choicesan operating outflow.an investing outflow.it is not included because it does not involve any movement of cash.a financing outflow
Question
In the statement of cash flows, depreciation is included in the statement of cash flows as:Group of answer choicesan operating outflow.an investing outflow.it is not included because it does not involve any movement of cash.a financing outflow
Solution
The correct answer is: it is not included because it does not involve any movement of cash.
Here's a step-by-step explanation:
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The statement of cash flows is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
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Depreciation is a non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. It is recorded on the income statement and reduces the net income of a company.
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However, because depreciation does not involve any actual cash outflow, it is added back to net income in the operating activities section of the statement of cash flows. This is done to adjust for the fact that it is a non-cash expense that was deducted in the calculation of net income.
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Therefore, while depreciation is considered in the statement of cash flows, it is not included as an operating, investing, or financing outflow because it does not involve any movement of cash.
Similar Questions
Which of the following statements best describes the reason Depreciation Expense is added to net income when preparing the statement of cash flows?Multiple ChoiceDepreciation expense originally reduced net income, but it actually represents a cash inflow for the company.Depreciation expense originally reduced net income, but the expense does not involve a cash payment (outflow).Depreciation expense originally reduced net income, but it actually represents a cash outflow for the company.Depreciation expense is not included in net income, therefore, its cash effect must be accounted for separately.
Depreciation Expense is ______ when preparing the indirect method of the statement of cash flows.Multiple choice question.subtracted from net income because the expense involves a cash outflowsubtracted from net income because the expense does not involve the payment of cashadded back to net income because the expense involves a cash inflowadded back to net income because the expense does not involve the payment of cash
Cash inflows and outflows associated with changes in non-current liabilities and equity, not arising from profit are included in which section of the statement of cash flows?Group of answer choicesNon-current.Operating.Financing.Investing.
There is no provision for depreciation in cash basis accounting because there is no actual cash involvedGroup of answer choicesTrueFalse
Depreciation expense is added back to net income in calculating operating cash flows.Group startsTrue or False
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