Depreciation is a source of cash inflow because?

A. it is a tax-deductible non-cash expense
B. is supplies cash for future asset purchases
C. it is a tax-deductible cash expense
D. it is a taxable expense

My answer is A because depreciation is a tax deductable non-cash expense.

A. looks right.

Your answer is correct! Depreciation is considered a source of cash inflow because it is a tax-deductible non-cash expense. Let me explain why.

Depreciation is an accounting method used to allocate the cost of an asset over its useful life. It reflects the decrease in value of an asset over time due to wear and tear, obsolescence, or other factors.

While depreciation itself does not involve an actual outflow of cash, it is tax-deductible. This means that businesses can deduct the depreciation expense from their taxable income, thereby reducing the amount of taxes they owe to the government.

By reducing the taxable income, depreciation indirectly increases the amount of cash available to the business. This is because the lower tax liability means the business has more cash on hand. Hence, depreciation is considered a source of cash inflow.

Option A, which states that depreciation is a tax-deductible non-cash expense, accurately represents why depreciation is considered a source of cash inflow.