Why Is Depreciation Expense Added to Net Income When Reconciling

question 126

Multiple Choice

Why is depreciation expense added to net income when reconciling net income to net cash provided by operating activities?

• A)Because depreciation expense represents a cash inflow
• B)Because depreciation expense is a tax deduction that reduces the payment of taxes
• C)Because depreciation expense conserves cash outflows for taxes
• D)Because depreciation expense reduces net income but it has no effect on cash,so we add depreciation expense to net income to cancel the deduction

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Definitions:

Taxable Income

The amount of an individual's or entity's income used to determine how much tax is owed, calculated as gross income minus deductions and exemptions.

Monthly Salary

The amount of money an employee is paid each month for their job performance, not including bonuses or overtime pay.

Net Pay

The amount of an employee's earnings after all deductions, such as taxes and retirement contributions, have been removed.

FICA Tax

The Federal Insurance Contributions Act (FICA) tax is a payroll tax in the United States that is required from both employers and employees to support Social Security and Medicare programs.