Question

Using the indirect method for cash flows, depreciation expense is added to net income to determine the A. cash flow from investing activities. B. cash flow from financing activities. C. cash flow from operating activities. D. cash flow from fixed asset activities.

Answer 1

The correct option is C.
Depreciation is the most common example of an operating expense that does not affect cash. Because of this, when using indirect method of calculating cash flow, depreciation expenses have to be added back to the net income.