2. \"How can Depreciation be a cash flow\"? 3. \"How can a gain on the sale of n
ID: 3052958 • Letter: 2
Question
2. "How can Depreciation be a cash flow"? 3. "How can a gain on the sale of non-current assets be a deduction from Net Income in determining the Cash Flow from Operating Activities? 4. "How can a Loss on the Sale of non current assets be be an addition to Net Income in determining Cash Flow from Operating Activities? 5. "Why does the bank need a Statement of Cash Flows anyway? They can compute the increase or decrease in cash flow from the Balance Sheet for the last two years"? 2. "How can Depreciation be a cash flow"? 3. "How can a gain on the sale of non-current assets be a deduction from Net Income in determining the Cash Flow from Operating Activities? 4. "How can a Loss on the Sale of non current assets be be an addition to Net Income in determining Cash Flow from Operating Activities? 5. "Why does the bank need a Statement of Cash Flows anyway? They can compute the increase or decrease in cash flow from the Balance Sheet for the last two years"?Explanation / Answer
Expenses that do not affect cash are added. Such expenses decrease net income but do not involve cash payments and, thus, are added to net income. Examples: Depreciation of fixed assets and amortization of intangible assets are added to net income.
Depreciation is a noncash accounting charge and does not have a direct impact on the amount of cash flowgenerated by a business or project. However, as long as there is sufficient taxable income to absorb it,depreciation is a tax-deductible expense and reduces tax cost, which has a positive impact on cash flow.
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