Which of the Following Statements Best Explains the Correct Handling

question 41

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

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Definitions:

Practical Understanding

Refers to a hands-on or experiential knowledge of how something works or operates in real-world scenarios.

Accounting

The systematic process of recording, analyzing, and reporting financial transactions of a business.

Finance Department

A corporate sector tasked with overseeing financial operations, risk management, and strategic planning related to finance.

Dividends

Dividends are payments made by a corporation to its shareholder members, usually extracted from the company's earnings.