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Why do we add back depreciation to net income in order to calculate cash from operation ?

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Question ajoutée par Abdul Vahid PT , Senior Accountant , The Switch Company
Date de publication: 2017/03/11
Sakhi Muhammad Imran
par Sakhi Muhammad Imran , Finance Manager , United Catering Co. WLL

As depricaition is non cash item so its add back in profit while preparing CFS

Utilisateur supprimé
par Utilisateur supprimé

Cash Flow statement is prepared based on Cash basis accounting and It ignores Accrual basis accounting. The net income/loss obtained from Income statement is from accrued basis accounting. Therefore, Non-cash transactions are added back in Cash Flow statement (under operating Activities) in order to remove the non-cash transactions. 

Khaliq Raza MBA   MS   CFE  AFA
par Khaliq Raza MBA MS CFE AFA , Finance Manager , Vertex Trading

Basically it give us relief in terms tax, But physically there is o cash outflow , So we add back while preparing CFS. Thanks