Depreciation affect the flow of cash

Explain in brief the depreciation expense as it comes on the income statement.  How can depreciation affect the flow of cash?




Accounting depreciation is the allotment of the asset's initial cost over time. Depreciation expense present on an income statement is the amount of the assets initial cost allotted to the period covered under the income statement.

Depreciation expense is not like a cash flow. It is an expense category which affects cash flow because it is tax-deductible.  Depreciation expense decreases taxable income of a company and thus its income tax liability. Thus it can be said that depreciation in a way reduces cash outflows.

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