Question

In the statement of cash flows, depreciation and amortization expense is added back to net income because:

(A) the cash disbursements for these accrued expenses will be made in a future period.
(B) these expenses do not affect cash, but were subtracted in the determination of net income.
(C) these expenses are recognized for accounting purposes, but they do not represent economic costs.
(D) these expenses affect investing activities, not operating activities.

Answer 1

Answer: Option b

Explanation: Cash flow statement refers to a financial statement that records the sources of inflow of cash and the uses for which the outflow of cash occur.

Depreciation and amortization is the decrease in value of the fixed assets over time due to their usage and wear and tear over time. It decreases net income but is not a cash expense.

Hence from the above we can conclude that the correct option is B .