Question

Depreciation expenses affect taxminusrelated cash flows by

A. decreasing taxable​ income, thus reducing taxes.
B. increasing taxable​ income, thus increasing taxes.
C. decreasing taxable​ income, but not altering cash flows since depreciation is not a cash expense.
D. all of the above.

Answer 1

A. decreasing taxable​ income, thus reducing taxes.

Step-by-step explanation:

Depreciation is an accounting technique that spreads the cost of a physical asset over its useful life. The cost of an asset is divided by the number of its useful years using an appreciate formula. Depreciation is in line with the expense and income matching principle.

The depreciation amount for each year is treated as an operating expense to the business. It is deducted from the gross profits while calculating net profits. Depreciation reduces the net profit and, consequently, taxable income. It, therefore, reduces the amount payable as tax.