Explain why, when utilizing the indirect method, depreciation expenditure, depletion expense, and amortization expense are added to net income in the operational activities part of the statement of cash flows rather of being included in the net income.

Explain why, when utilizing the indirect method, depreciation expenditure, depletion expense, and amortization expense are added to net income in the operational activities part of the statement of cash flows rather of being included in the net income.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter16: Statement Of Cash Flows

Section: Chapter Questions

Problem 7Q: Explain the difference between the two methods used to prepare the operating section of the...

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Question

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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