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As depricaition is non cash item so its add back in profit while preparing CFS
Cash Flow statement is prepared based on Cash basis accounting and It ignores Accrual basis accounting. The net income/loss obtained from Income statement is from accrued basis accounting. Therefore, Non-cash transactions are added back in Cash Flow statement (under operating Activities) in order to remove the non-cash transactions.
Basically it give us relief in terms tax, But physically there is o cash outflow , So we add back while preparing CFS. Thanks
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