If depreciation expense is not a cash flow, why do we have to subtract it and add it back? Why not just ignore it?
Question
Solution 1
Depreciation expense is a non-cash expense that reduces a company's earnings on its income statement. However, because it is a non-cash expense, it does not reduce the company's cash flow. This is why it is added back in the cash flow statement.
Here's a step-by-step explanation:
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