With Respect to the Relationship Between Depreciation and Cash, Which

question 133

Multiple Choice

With respect to the relationship between depreciation and cash, which one of the following statements is incorrect?

• A) Accumulated depreciation is the total amount of the original cost of an asset already written off to expense in prior periods.
• B) Depreciation does not generate cash.
• C) Depreciation is an allocation of the original cost of an asset to the periods in which the asset is used.
• D) Charging depreciation expense provides a means of setting aside cash for the replacement of an asset.

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Definitions:

Financial Distress

An instance wherein a business faces challenges or fails to satisfy its monetary debts to creditors.

Trade-off

The process of sacrificing one quality, quantity, or property to gain another.

Accounts Receivable

Money owed to a business by its clients for goods or services that have been delivered or used but not yet paid for.

Current Assets

Current assets include all assets that a company expects to convert into cash or use up within one business cycle, such as cash, inventory, and accounts receivable.