How does depreciation affect cash balance?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $9.99Unlock all

Enhance your accounting skills for the PSIA Accounting Exam. Use flashcards and multiple-choice questions to prepare effectively with hints and explanations. Get set for your exam success!

Multiple Choice

How does depreciation affect cash balance?

Explanation:
Depreciation is a non-cash expense that reduces taxable income, which lowers taxes owed. That tax shield lowers cash outflows for taxes, so the cash balance increases by the amount of depreciation multiplied by the marginal tax rate. In short, depreciation doesn’t put cash in directly, but it reduces tax payments, leading to higher cash as a result of the tax savings.

Depreciation is a non-cash expense that reduces taxable income, which lowers taxes owed. That tax shield lowers cash outflows for taxes, so the cash balance increases by the amount of depreciation multiplied by the marginal tax rate. In short, depreciation doesn’t put cash in directly, but it reduces tax payments, leading to higher cash as a result of the tax savings.

More Multiple Choice Questions
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy