Depreciation is a non-cash expense that is added back to which section of the cash flow statement?

• A. Cash Flow From Financing
• B. Cash Flow From Investing
• C. Cash Flow From Operating
• D. Statement of Changes in Equity

Answer: (C)

Depreciation is a non-cash charge that reduces reported profit but doesn’t involve an actual cash outflow in the period. When preparing the cash flow statement, you convert accrual net income to cash by starting with net income and adding back non-cash expenses. Since depreciation lowers net income without using cash, it is added back to calculate cash flow from operating activities. This section tracks cash generated from core business operations, not from financing or investing activities, or changes in equity. So depreciation is added to operating cash flows.