Why Do Accountants Add Depreciation Expense to Net Income When

question 121

Multiple Choice

Why do accountants add Depreciation Expense to net income when determining net cash provided by operating activities?

• A)because depreciation expense is a source of cash
• B)because depreciation expense requires the outflow of cash
• C)because depreciation expense is an investing activity that should be reported in the investing section of the cash flow statement
• D)because it cancels the earlier deduction when calculating net income

---

Definitions:

Shareholder

An individual or entity that owns one or more shares of stock in a corporation, thereby having a financial stake and certain rights within the company.

Corporation

A legal entity that is distinct and separate from its owners, which can own property, incur liabilities, and is subject to taxation.

Cumulative Voting

A voting system in corporate governance that allows shareholders to concentrate their votes on a single candidate, enhancing minority shareholders' representation.

Minority Shareholder

An investor or shareholder who owns less than 50% of a company's shares, holding lesser voting power and control over corporate decisions compared to majority shareholders.