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Depreciation is added back in cash flow statement because it is a non-cash item, which had reduced the net income, and thus should be added back
Agree with Mr. Venkitaraman K. M.
Because depreciation is a non cash expense, It must be added back to net income to get the cash flow statement balance accurately
Cash flow statement provides information about cash health of the organisation. Depreciation is the non-cash item and it has been debited in P&L accounts, since the cash flow statement starts with the net profit/(loss) amount it need to be credited or add back.
The cash flow statement is begin with net income, whereas net income is arrived at after providing for depreciation. Though depreciation is treated as an expense no outgoing payment was effected by way parting with liquid cash whereas it was adjusted by means of reduction in the value of assets. On account of depreciation there as no outflow of cash and has to be added back to net income for the purpose of preparation of Cash flow statement.
Because we begin preparing the statement of cash flows using the net income figure taken from the income statement, we need to adjust the net income figure so that it is not reduced by Depreciation Expense. To do this, we add back the amount of the Depreciation Expense.
Deprecation is non cash expenses that is why we added back cash flow statement in indirect method
Statement of cash flows shows the changes in cash . And Depreciation is a noncash Expense deducted from income , so it must be added back
Cashflow statement is a statement that shows the flow of cash in various activities such as operating, investing and financing.
Clearly, this is a statement regarding cash.
Profit is calculated by subtracting expenses from revenue. Expenses here includes non cash expenses too.
Depreciation is a non cash expenditure. So in order to find the actual cash balance, we need to add back all non cash expenditures.
So depreciation is added back.
