anonymous
  • anonymous
What's the difference between the depreciation on the income statement and the depreciation on the cash flow statement?
Finance
katieb
  • katieb
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anonymous
  • anonymous
depreciation on the income statement is counted as a notional expense, hence making a business' profit seem lower, which is not actually true as depreciation cannot be quantified. this enables the business to pay less taxes. in a cash flow statement, depreciation is put under cash outflows, hence reducing the monthly or yearly closing balance of the business.
anonymous
  • anonymous
Basicaly the depreciation in the income statement should be same as the one in the cash flow. In the income statement the depreciation (actually amortization to be more precise) represents a part of the assets' value recognised as cost of period - in other words, the cash-out for an asset's aquisition is not an expense at the moment you buy it, it becomes an expense gradually during its life time. In the cash flow (indirect method), the depreciation is added (appears with +) because it is not an actual cash-out.

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