College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
22nd Edition
ISBN: 9781305666160
Author: James A. Heintz, Robert W. Parry
Publisher: Cengage Learning
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Chapter 23, Problem 1MYW

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Direct Method

A friend of yours was looking at a schedule for the calculation of cash generated from operating activities prepared under the direct method and asked why depreciation expense is deducted from operating expenses. He is curious why depreciation is not considered an expense. Write a brief memo that explains why depreciation expense is deducted from operating expenses when preparing this schedule.

Indirect Method

A friend of yours was reading a statement of cash flows prepared under the indirect method and saw that depreciation expense was added when computing cash from operating activities. She is curious why depreciation is considered a source of cash. Write a brief memo that explains why depreciation expense is added to net income on the statement of cash flows and why it certainly is not a source of cash.

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College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

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