During 2011 the Valley Company had the following transactions.

1) The Accumulated Depreciation account had a beginning balance of $25,000 and an ending balance of $35,000. The increase was due to depreciation expense.

2) The Long-Term Notes Payable account had a beginning balance of $40,000 and an ending balance of $15,000. The decrease was due to repayment of debt.

3) The Accounts Receivable account had a beginning balance of $60,000 and an ending balance of $50,000. The difference was due to collection of revenue.

4) The Equipment Account had a beginning balance of $25,000 and an ending balance of $92,500. The increase was due to the purchase of other operational assets.

5) The Long Term Investments Account (Marketable Securities) had a beginning balance of $18,000 and an ending balance of $12,500. The decrease was due to the sale of investments at cost.

6) The Dividends Payable account had a beginning balance of $12,000 and an ending balance of $10,000. There were $20,000 of dividends declared during the period.

7) The Interest Payable account had a beginning balance of $2,250 and an ending balance of $1,250. The difference was due to the payment of interest.

What effect does depreciation expense have on net income and cash flows?