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:

Retirement

The period in a person's life when they choose to leave the workforce permanently, often marked by reaching a certain age or financial status.

Simplified Method

A streamlined procedure for calculating certain financial figures, such as pension or annuity taxation, to ease the calculation process.

Qualified Pension Plan

A qualified pension plan is a retirement plan that meets the requirements of Section 401(a) of the U.S. Internal Revenue Code and offers tax advantages, such as tax-deferred growth on earnings.

Monthly Payments

Regular installment payments made monthly over a period, often in the context of loans or leases.