Which of the Following Statements Best Explains the Correct Handling

question 42

Multiple Choice

Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?

• A)Depreciation expense is a noncash expense that is added to net income to derive cash flows from operating activities.
• B)Depreciation is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset.
• C)Depreciation is subtracted from net income because it causes a loss when the related plant asset is sold.
• D)Depreciation adds to the company's Cash account to help pay for new equipment.

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Definitions:

Cost of Goods Sold

The total direct costs attributable to the production of the goods sold by a company, including materials and labor.

Indirect Expenses

Costs not directly tied to a product or service, like utilities and rent.

Departments

Departments refer to distinct areas or divisions within a business or organization, each handling specific tasks or responsibilities.

Industries

Broad sectors of the economy categorized according to their primary business activities, such as technology, healthcare, or finance.