more-arw search

Q&A Forum

Why does the cashflow statement show depreciation and amortization as cashflow positive number?

Greg Ryan's Profile

I have a rudimentary understanding of "accounting" principals, that being I don't understand how something like depreciation would or could show up as a positive number on the cashflow statement. I understand the cashflow statement captures both the current operating results and the accompanying changes in the balance sheet. But how depreciation in an asset finds its way to cashflow as some sort of income seems to elude me. Any

Answers

Kelvin Smith
Title: Vice President
Company: Financial Computer Systems Inc.
(Vice President, Financial Computer Systems Inc.) |

It's not income, it's an add-back. The cash flow statement starts with your net income for the period. But the net income includes a reduction for depreciation expense, which is a non-cash expense (you've recognized a cost in the income statement, but you haven't paid out cash for it). Therefore, you need to add that back to the net income to determine your cash flows. Conversely, if you purchase a capital asset (one that gets depreciated), that has to be subtracted in the cash flow statement (as "investing activities"), because you've laid out the cash but it wasn't recognized in net income.

449 views
Topics

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.