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Depreciation DOES have an effect on the cash flow statement! You need to "add-back" the depreciation expense for the year in the cash flow statement, as an inflow under "operating expenses". It is also an expense that lowers your net income and appears on the income statement. Since it lowers your net income, when doing a cash flow statement it needs to be added back. You actually did not spend any cash on the depreciation expense.
Depreciation Is considered a non-cash expense, since it is simply an ongoing charge to the carrying amount of a fixed asset, designed to gradually reduce the recorded cost of the asset over its useful life. When creating a budget for cash flow , depreciation is typically listed as a reduction from expenses, thereby implying that it has no impact on cash flows. Nonetheless, depreciation does have an indirect affect on cash flow
Depreciation is considered a non-cash expense, since it is simply an ongoing charge to the carrying amount of a fixed asset, designed to gradually reduce the recorded cost of the asset over its useful life. When creating a budget for cash flows, depreciation is typically listed as a reduction from expenses, thereby implying that it has no impact on cash flows. Nonetheless, depreciation does have an indirect affect on cash flow.
When a company prepares its income tax return, depreciation is listed as an expense, and so reduces the amount of taxable income reported to the government (the situation varies by country). If depreciation is an allowable expense for the purposes of calculating taxable income, then its presence reduces the amount of tax that a company must pay. Thus, depreciation affects cash flow by reducing the amount of cash a business must pay in income taxes.
