Question

What impact does depreciation have on the cash account?

• A. Depreciation only impacts the cash account if inflation has occurred.
• B. Depreciation has no impact on the cash account
• C. Depreciation results in an increase to cash.
• D. Depreciation results in a decrease to cash.

Answer 1

Answer: (B)

Depreciation has no impact on the cash account

The use of depreciation can reduce taxes that can ultimately help to increase net income. The result is a higher amount of cash on the cash flow statement because depreciation is added back into the operating cash flow. Ultimately, depreciation does not negatively affect the operating cash flow of the business