Which of the following is the best explanation of why depreciation is added back to operating profit

Question:

Which of the following is the best explanation of why depreciation is added back to operating profit while calculating the cash flow from operations?

(a) Depreciation is a subjective amount in the profit calculation, and so must be taken out to leave only objective measures.

(b) Depreciation is an expense in the profit calculation but does not involve a flow of cash, and so must be taken out of the profit calculation.

(c) Depreciation must be removed from the income statement (profit and loss account) because it belongs to the relevant asset in the capital expenditure section.

(d) Depreciation has been reported once in the income statement (profit and loss account); there is no need to report it a second time in the income statement (profit and loss account).

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Financial Accounting

ISBN: 9781292244471

8th Edition

Authors: Pauline Weetman

Question Posted: