Question
Which of the following are true about depreciation expense?
Multiple select question.
It affects the accounting profit break-even point.
It does not affect the cash flows.
It affects cash flows.
It is a noncash expense.
Multiple select question.
It affects the accounting profit break-even point.
It does not affect the cash flows.
It affects cash flows.
It is a noncash expense.
Answers
GPT-4o mini
The following statements about depreciation expense are true:
1. **It affects the accounting profit break-even point.** - True. Depreciation is an expense that reduces accounting profit, which can affect the calculation of the break-even point.
2. **It does not affect the cash flows.** - False. Depreciation itself does not involve a cash outlay during the period it is recorded; however, it can affect cash flows indirectly through tax savings.
3. **It affects cash flows.** - False in a direct sense. While depreciation reduces taxable income and thus can lead to cash tax savings (increasing cash flows), it does not directly involve cash flowing in or out in the period it is recorded.
4. **It is a noncash expense.** - True. Depreciation is considered a noncash expense because it is an accounting entry that allocates the cost of tangible assets over their useful lives without a cash transaction happening at the time of the recognition.
So, the correct options are:
- It affects the accounting profit break-even point.
- It is a noncash expense.
1. **It affects the accounting profit break-even point.** - True. Depreciation is an expense that reduces accounting profit, which can affect the calculation of the break-even point.
2. **It does not affect the cash flows.** - False. Depreciation itself does not involve a cash outlay during the period it is recorded; however, it can affect cash flows indirectly through tax savings.
3. **It affects cash flows.** - False in a direct sense. While depreciation reduces taxable income and thus can lead to cash tax savings (increasing cash flows), it does not directly involve cash flowing in or out in the period it is recorded.
4. **It is a noncash expense.** - True. Depreciation is considered a noncash expense because it is an accounting entry that allocates the cost of tangible assets over their useful lives without a cash transaction happening at the time of the recognition.
So, the correct options are:
- It affects the accounting profit break-even point.
- It is a noncash expense.