To estimate the cash flow from operations, depreciation must be added back to net income because depreciation is a non-cash charge that has been deducted from revenue in the net income calculation. a. True b. False

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Business

Biggie

27 April, 07:10

To estimate the cash flow from operations, depreciation must be added back to net income because depreciation is a non-cash charge that has been deducted from revenue in the net income calculation. a. True b. False

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Cruz Allen · Answer 1

a. True

Explanation:

When an asset is purchased with Cash, the entries are debit to fixed assets and credit to cash. Depreciation is not recognized until the asset has been put to use.

To determine net income, depreciation and amortization expenses are deducted as expenses from the revenue.

Hence in the determination of Cash flows from operating expenses, such non-cash items that were deducted will be added back.