Question

The balance sheet from the beginning of a certain firm's fiscal year and the one from the end of its fiscal year show an increase in accumulated depreciation of $200,000. This amount represents a:

1) cash outflow from operating activities
2) noncash activity that should not be shown on the statement of Cash flows itself
3) cash outflow from earning activities
4) cash inflow from investing

Answer 1

An increase in accumulated depreciation is a noncash activity that does not trigger any cash flow, hence it should not appear on the statement of cash flows itself. Thus, the option "2" is the correct answer.

Step-by-step explanation:

The increase in accumulated depreciation of $200,000 on a firm's balance sheet from the beginning to the end of its fiscal year represents a noncash activity that should not be shown on the statement of Cash Flows itself. Accumulated depreciation is the total amount of depreciation expense that has been recorded against a company's assets over time. This increase in accumulated depreciation does not involve any actual cash movement; rather, it represents the allocation of the cost of tangible assets over their useful lives. Consequently, it is not a cash outflow from operating, earning, or investing activities.