Question
Asked Oct 21, 2019
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Explain why depreciation expense is added back to net income and why an increase in inventories is deducted from the net income.

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Expert Answer

Step 1

A Cash flow statement is a financial statement that provides summarised information regarding cash inflows and cash outflows in a given period of time. The cash inflows and cash outflows are summarised on the basis of different activities taken by the business i.e. operating, investing and financing.

Step 2

Depreciation is a reduction in the value of an asset due to its wear and tear. Depreciation Expense is a non-cash expense. This expense does not result in any cash outflow.

In the Income statement, Depreciation is deducted from ...

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Cash Flow Statements

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