What does the depreciation line on the cash flow statement mean?

Depreciation on the income statement was an expense (and thus contributed to a decrease in profit), but unlike other expenses, it incurred no corresponding reduction to cash. Therefore, in order for the cash flow statement to accurately describe cash flow, we make a depreciation entry to add back that amount of cash. In other words, the profit line, in effect, overstated the effect on cash by the amount of the depreciation, and so we counter the effect by making this entry.

Related Questions:

How can I see my cash flow statement?

How can I see my income statement?


Site Tools