Does depreciation have a direct effect on the cash flow of a business?

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Solution

Depreciation has an indirect effect on the cash flow of a business as it creates an impact on the company’s tax liabilities as depreciation is listed as an expense at the timing of filing tax returns and this reduces cash outflows from income tax

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Similar questions

Q. Prepare an Accounting Equation on the basis of the following transactions:
(i) Started business with cash ₹ 70,000.
(ii) Credit purchase of goods ₹ 18,000.
(iii) Payment made to creditors in full settlement ₹ 17,500.
(iv) Purchase of machinery for cash ₹ 20,000.
(v) Depreciation on machinery ₹ 2,000.

Show the accounting equation on the basis of the following transactions.

1. Rajkumar started business with cash Rs 30,000.
2. Purchased goods for cash Rs 1,000.
3. Paid salary Rs 400.
4. Paid rent in advance Rs 2,000.
5. Charged depreciation Rs 300 on Furniture and Rs 500 on Machinery.

Q. What impact does depreciation have on the cash account?

Q. how to record provision for depreciation in cash flow statement?

Depreciation expenses are _________ to net profit while calculating cash flow from operating activities.

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