Depreciation expense must be put back to net income under the indirect method since net income serves as the starting point for calculating cash flows from operational activities.
Depreciation is one of a company's expenses that is taken into account when calculating net income. Depreciation, however, is not a financial spend because it is an accounting metric. Depreciation expense is thus re-included in the cash flow statement when determining a company's cash flow.
Depreciation is included as a cost of generating production gross receipts because it is regarded under the IRC as an usual and necessary business expense.
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