Question

Which of the following statements is CORRECT? a. Depreciation is not a cash charge, so it does not have an effect on a firm's reported profits. b. Operating income is derived from the firm's regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes. c. Because a firm's cash flow is shown as the lowest entry on the income statement, people often call it "the bottom line." d. The more depreciation a firm reports, the higher its tax bill, other things held constant. e. Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a reduction in the firm's cash flow.

Answer 1

Operating income is derived from the firm's regular core business. Operating income is calculated as Revenues less Operating costs. Operating costs do not include interest or taxes.

Step-by-step explanation:

a. The depreciation is an expense that is charged every year over the asset useful life. By this impact, the net income and profitability would be impacted negatively. Hence, it is not right

b. Operating income comes to form the regular business and it is computed by taking a difference in revenue and the operating cost only.

c. The c part is incorrect as it is not a bottom lined. It does not high the bill of tax. Hence, it is also a wrong option

e. In cash flow, the depreciation expenses are added. Hence, this option is also wrong

Hence, option b is right