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Unformatted text preview: resulting from the transaction would be an addition to cash, not a cash drain. 5-21 Cash + Noncash assets = Liabilities + Paid-in capital + Retained earnings Cash = Liabilities + Paid-in capital + Retained earnings Noncash assets 5-22 The erroneous impression is that depreciation is a source of cash because it is added to net income to determine cash flow from operations. Depreciation is an allocation of an assets original cost to expense that does not entail a current cash outlay; that is, depreciation is a noncash expense. It is added to net income when using the indirect method only to offset its deduction in computing net income. 5-23 The newsletter reinforces the widely held erroneous impression that depreciation provides cash. See the solution to 5-22....
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