Question
Which of the following are true about depreciation expense?
Multiple select question.
It is a noncash expense.
It affects the accounting profit break-even point.
It affects cash flows.
It does not affect the cash flows.
Multiple select question.
It is a noncash expense.
It affects the accounting profit break-even point.
It affects cash flows.
It does not affect the cash flows.
Answers
GPT-4o mini
The following statements about depreciation expense are true:
1. **It is a noncash expense.** - Depreciation does not involve an actual cash outflow; rather, it is an accounting method to allocate the cost of an asset over its useful life.
2. **It affects the accounting profit break-even point.** - Depreciation is included in the calculation of expenses, which impacts net income and, consequently, the break-even point.
The other two statements are false:
- **It affects cash flows.** - This statement is misleading because while depreciation affects profit (and thus taxes), it does not directly affect cash flows since it is a noncash expense.
- **It does not affect the cash flows.** - This statement is true in the sense that depreciation itself does not result in cash movement, so it can be considered as not affecting cash flows directly.
So, your correct selections would be:
- It is a noncash expense.
- It affects the accounting profit break-even point.
1. **It is a noncash expense.** - Depreciation does not involve an actual cash outflow; rather, it is an accounting method to allocate the cost of an asset over its useful life.
2. **It affects the accounting profit break-even point.** - Depreciation is included in the calculation of expenses, which impacts net income and, consequently, the break-even point.
The other two statements are false:
- **It affects cash flows.** - This statement is misleading because while depreciation affects profit (and thus taxes), it does not directly affect cash flows since it is a noncash expense.
- **It does not affect the cash flows.** - This statement is true in the sense that depreciation itself does not result in cash movement, so it can be considered as not affecting cash flows directly.
So, your correct selections would be:
- It is a noncash expense.
- It affects the accounting profit break-even point.