Final answer:
Depreciation is a noncash expense but can help reduce cash paid for taxes.
Step-by-step explanation:
True, depreciation is considered a noncash expense because it represents the gradual loss of value of an asset over time. However, depreciation expense is deductible for tax purposes, which means it can help reduce the amount of cash paid for taxes.
For example, let's say a company purchases a delivery truck for $20,000. The IRS allows the company to deduct a certain amount of depreciation expense each year (assuming a straight-line depreciation method). This deduction reduces the company's taxable income, which in turn reduces the amount of taxes owed. So, while depreciation doesn't directly impact cash flow, it indirectly helps to reduce the cash paid for taxes.
The statement is true: although depreciation is considered a noncash expense, it is indeed a deductible expense that can reduce the amount of cash paid for taxes. This is because depreciation expense is recognized on the income statement and reduces the taxable income, thereby potentially reducing the total tax liability for a business. For example, if a company purchases a piece of equipment for $50,000 and it depreciates over 5 years, the company can claim a $10,000 depreciation expense each year, which will reduce its taxable income by that amount each year.