When Using the Indirect Method, Depreciation Expense

question 116

Multiple Choice

When using the indirect method, depreciation expense:

• A) Increases net cash from operations.
• B) Decreases net cash from operations.
• C) Does not affect profit for the year.
• D) Does not affect net cash from operations.

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Definitions:

Direct Method

An approach to preparing the cash flow statement that involves reporting major classes of gross cash receipts and payments.

Operating Activities

Activities that relate directly to the primary business operations of a company, such as selling goods and services, which are reflected in the cash flow statement.

Cash Dividends

Payments made by a corporation to its shareholders from earnings, usually on a quarterly basis, representing a portion of the corporate profits.

Accumulated Depreciation

The total amount of a tangible asset's cost that has been allocated as depreciation expense since the asset was put into use.