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Q:

Why we have to add back depreciation in cash flow statement (operating activities)?

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1 Answer

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You don't write a check for it. The cash flow statement is to explain if you made a profit where did it go. So anything like depreciation and amortization that aren't expenses that are paid in cash have to be added back. Other adjustments are changes in AR and AP that explain why you don't have all the money you earned. When you sell a fixed asset like a vehicle you might get a check for $500 but have a value of what you paid for it less accumulated depreciation of a different amount so you have to adjust to show why you have the money in a different amount. more
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