Series 79 practice questionmediumStatement Linkages - Depreciation
Which of the following best describes how recording depreciation expense affects the three primary financial statements?
- AReduces net income; increases cash flow from investing; reduces assets
- BReduces net income; no cash flow impact; reduces assets
- CReduces net income; increases cash flow from operations; reduces assets✓ Correct answer
- DNo net income impact; reduces cash flow from operations; increases assets
Explanation
Why C — Reduces net income; increases cash flow from operations; reduces assets
Depreciation reduces net income and asset value, but is a non-cash expense added back in operating cash flow, thereby increasing it. It does not affect investing cash flow.
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