Series 79 practice questioneasyLinkage of Statements
If a company records depreciation expense in its income statement, what is the initial impact on cash flow from operating activities (all else equal)?
- AIncrease
- BDecrease
- CNo impact✓ Correct answer
- DDepends on method of depreciation
Explanation
Why C — No impact
Depreciation has no net cash effect. Under the indirect method, it reduces net income and is then added back in the reconciliation to operating cash flow, so cash flow from operating activities is unchanged, all else equal.
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