Decrease in tax liability generates increase in net income

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Which of the following statements best describes the sign (positive or negative) on depreciation expense?

The sign on depreciation is positive because depreciation lowers the tax liability of the company. A decrease in tax liability generates an increase in net income since less tax is paid.

The sign on depreciation is positive because the computation of net income included a noncash depreciation expense. The noncash expense is removed by adding depreciation.

The sign on depreciation is negative because expenses are always subtracted from net income in cash flow statements to reflect the true amount of cash generated from operating activities.

The sign on depreciation is negative because cash is paid for equipment used in operations that are not yet reflected in the cost of goods sold. This increase in the cost of goods sold is subtracted from net income.

Reference no: EM13720154

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