i need help i can not understand this Question i don't know where to find the answer i have been looking for hours please some one help me !
Question is my is in hospitality finances class
Explain why depreciation expense should be added back when compiling the statement of
cash flow. If there is an amortization expense account, how would you treat it?
I'm here to help you understand the question and guide you on how to find the answers you need.
First, let's break down the question into two parts:
1. Why should depreciation expense be added back when compiling the statement of cash flow?
2. If there is an amortization expense account, how would you treat it?
To answer the first part, let's start by understanding what depreciation expense is. Depreciation is a non-cash expense that represents the decrease in value of an asset over time. When compiling the statement of cash flow, depreciation expense is added back (or "depreciation is added back") because it does not involve an actual outflow of cash. By adding it back, it gives a clearer picture of the actual cash flow of the company.
To find more information and understand the concept better, you can refer to your class materials such as textbooks, lecture notes, or online resources. Look for topics related to the statement of cash flow, specifically the treatment of non-cash expenses like depreciation.
Now let's move to the second part of the question regarding amortization expense. Amortization is similar to depreciation but is mainly used for intangible assets such as patents or copyrights. Like depreciation, amortization is a non-cash expense. When compiling the statement of cash flow, the treatment of amortization expense is the same as depreciation. It should also be added back to reflect the actual cash flow of the business.
Again, to gain a deeper understanding of how to treat amortization expense, refer to your class materials or external resources that explain the statement of cash flow and its components.
If you are still struggling to find the answers after conducting research, consider reaching out to your professor or classmates for further clarification. They can provide additional guidance and resources that may be helpful to you.
Remember, understanding the why behind accounting concepts is important, as it will help you comprehend the bigger picture and make meaningful connections in your studies.