Why Is Depreciation Expense Added Back to Net Income in the Operating

question 61

Multiple Choice

Why is depreciation expense added back to net income in the operating section of the indirect cash flow statement?

• A)Depreciation expense represents cash outflows for a firm.
• B)Depreciation expense represents cash inflows for a firm.
• C)Depreciation expense represents a noncash expense that must be moved to the investing section of the cash flow statement.
• D)Depreciation expense represents a noncash expense that must be added to net income to cancel its affect within the net income calculation.
• E)Depreciation expense represents a cash expense that must be added to net income to cancel its affect within the net income calculation.

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Definitions:

Supply Side Economists

Economists who believe in the effectiveness of policies that focus on boosting output and economic growth by increasing the supply of goods and services, often through tax cuts and deregulation.

Classical Economists

Economists from the 18th and 19th centuries who focused on the idea that free markets regulate themselves through the laws of supply and demand.

Monetarists

Economists who emphasize the role of governments in controlling the amount of money in circulation as a primary method for stabilizing the economy.

Keynes

Refers to John Maynard Keynes, an economist whose ideas fundamentally changed the theory and practice of macroeconomics and economic policies.