Which of the Following Statements Best Describes the Reason Depreciation

question 113

Multiple Choice

Which of the following statements best describes the reason Depreciation Expense is added to net income when preparing the statement of cash flows?

• A)Depreciation expense originally reduced net income,but it actually represents a cash inflow for the company.
• B)Depreciation expense originally reduced net income,but the expense does not involve paying cash.
• C)Depreciation expense originally reduced net income,but it actually represents a cash outflow for the company.
• D)Depreciation expense is not included in net income and,so,its cash effect must be accounted for separately.

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Definitions:

Receivables Turnover

A measure of how efficiently a company collects on its credit sales, calculated as sales divided by average accounts receivable.

Return On Equity

A measure of a company's profitability, calculated by dividing net income by shareholder equity.

Du Pont Identity Method

The Du Pont Identity Method is a financial analysis framework that breaks down a company's return on equity into three parts: profitability, asset efficiency, and financial leverage.