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Depreciation expense is an operating expenses deducted from gross income to arrived at net income. It does not affect cash flow because when you prepare Cash Flow Stateement , net income is added .Therefore, depreciation should be added back in preparing Cash Flow Statement since this expense does not involve cash.
Depreciation is deducted from Gross profit of any business firm on the Income Statement.
Depreciation is added back to Net Income in Indirect method of Cash Flows because it is a Non-cash item and its effects should therefore be eliminated from Net income.
Depreciation expense will be treated as non-cash expense and deducted from Gross Profit.
In Cash flow statement it is added back under the Income from Operating Activities
Depreciation is reduction in value of asset...due to usage or time. Depreciation is debited in P&L account and deducted frm Asset value in Balance Sheet..There are few methods of depreciation like
Written down value method. Straigh method. etc
