BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The income statement is put together at a specific point in time (end of a business quarter, or business year) and so the sale could be in one period and the cash received in another period.
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The income statement contains the set of expenses associated with the products or services sold during the current operating period, with those expenses not associated with current cash flow labeled as non-cash expense items.
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Companies depreciate fixed assets (such as office furniture, equipment, machinery, and buildings) over an assigned time period, but the initial cash outlay for the fixed asset typically occurs at the time the asset is acquired by the firm.
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In almost all circumstances depreciation is a current expense of a cash outflow in the current period.
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Detailed explanation-1: -Depreciation can be considered as cash inflow because it has an indirect effect on reducing the cash outflow from the business.
Detailed explanation-2: -Depreciation is not a cash expense as there is no amount of cash outflow in depreciation, it is just a decrease in the value of the asset.
Detailed explanation-3: -A non-cash charge is a write-down or accounting expense that does not involve a cash payment. Depreciation, amortization, depletion, stock-based compensation, and asset impairments are common non-cash charges that reduce earnings but not cash flows.
Detailed explanation-4: -The statement is TRUE. Depreciation aims to recover the costs for previous fixed asset purchases, which payments were made at the time of purchase. Hence, there will be no cash-expense at the time that depreciation is deducted from the revenue to lower the taxable income.