SimerpreetHelpful In: 1. Financial Accounting > Depreciation & Amortization Is depreciation a cash flow? Is depreciation a cash flow? Cash FlowDepreciation Share Facebook You must login to add an answer. Username or email* Password* Captcha* Remember Me! Forgot Password? Need An Account, Sign Up Here 1 Answer Voted Recent Astha Leader Pursuing CA, BCom (Hons.) 2021-06-02T12:43:44+00:00Added an answer on June 2, 2021 at 12:43 pm This answer was edited. Depreciation refers to that portion of the value of an asset that a company uses in an accounting year to generate revenue. Assets are written off in form of depreciation over time also called the useful life of the asset. It denotes the wear and tear of an asset over time. Suppose, a company named Johnson ltd. purchases machinery for 50,000 that has a useful life of 5 years with nil salvage value. Then the yearly depreciation to be charged can be calculated as: Is Depreciation a Cash Flow? Cash flows are inflows and outflows of cash and cash equivalents in an entity. The payments made by the entity denote the outflows whereas the revenues or incomes of the entity denote the inflows. Talking about cash flows, depreciation is a non-cash item of expense which means it neither results in inflow nor outflow of cash resources. In the adjacent Profit and Loss statement, a cash payment of 7,000 for electricity implies outflow of cash however, depreciation of 10,000 is merely an imputed cost to write off an asset or we can say, a part of profits set aside each year so that there are sufficient funds available to procure a new asset after the currently available asset is discarded. However, cash flow statements are affected by depreciation. Depreciation is added back to the net profits while calculating cash flows from operating expenses since it is a non-cash item and has been deducted while calculating net profits in the profit and loss statement. Depreciation does not directly impact the amount of cash generated or expended by a business but it is tax-deductible and will reduce the cash outflows related to income taxes. Thus, depreciation affects cash flow by reducing the amount of cash a business has to pay for income taxes. 0 Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Related Questions In branch accounting depreciation on branch fixed assets is? Total depreciation of an asset cannot exceed its? Depreciation of fixed assets is an example of which expenditure? Depreciation of fixed capital assets refers to? What are the different methods of charging depreciation?