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A - Add to net income in cash flow indirect method and substract from revenue in net income statement
B -subtract from net income in cash flow indirect method and add to revenue in net income statement
C - Add to net income in cash flow indirect method and add to revenue in net income statement
D-subtract from net income in cash flow indirect method and substract from revenue in net income statement
Depreciation expense is the allocated portion of the cost of a company's fixed assets that is appropriate for the accounting period indicated on the company's income statement. For instance, if a company had paid $2,400,000 for its office building (excluding land) and the building has an estimated useful life of 40 years, each monthly income statement will report straight-line depreciation expense of $5,000 for 480 months. [However, the allocated cost of the fixed assets used in manufacturingwill be part of the manufacturing overhead which will become part of the cost of the products manufactured.]Depreciation expense is referred to as a non-Catholic expense because the recurring, monthly depreciation entry (a debit to Depreciation Expense and a credit to accumulation depreciation ) does not involve a cash payment. As a result, the statement of cash flows prepared under the indirect method will add depreciation expense to the amount of net income.The common methods for computing depreciation expense include straight-line, double declining balance , sum of years digits , and units of production activity.
Depreciation is:The systematic and rational allocation of the costs of a fixed asset over its expected useful life.
In other words, what depreciation does is match the expense (cost) of acquiring the asset with the revenues that it will generate over its useful life by spreading the recognition of expense of acquisition over the time period during which the asset will be useful (provide revenue) to the company. This is the concept of matching. Depreciation is a method of cost allocation. It is a purely mathematical process of dividing in some manner the cost of the asset between the periods in which it will be used.
Answer A is correct.
Add to net income in cash flow indirect method and substract from revenue in net income statement
A systematic allocation of an entity's tangible fixed assets' cost (excluding estimated salvage value) over their useful lives. Thus, it is not an actual / cash periodic expense but an attemp to match part of fixed assets' cost with the benefits they provided during that period.
See below answers submitted by Mohamed Ghazi and Ghad Eweda. The both have explained the point very well.
