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May I ask a question relates to depreciation cost in cash budget. I remember that you explain in FA that depreciation is a capital revenue which do not show in cash statement. But there is a question in bpp asking to calculate the cash budget and it states that “fixed overhead includes depreciation of 2280 dollars per month” and the answer uses fixed overhead less depreciation to appear on statement of cash flow which confused me.
Many thanks for reading through!
Depreciation is an expense not revenue.
However it is not a cash flow and is therefore not relevant in a cash budget. (The initial cost of the asset is a cash flow and the entire cost is included in the cash budget at the time it is paid)
Thanks for the explanation, so fix production cost as an expense should less the depreciation which is the actual amount we need to pay for the month. Am I right sir?
You are correct – the actual cash paid is the fixed costs less the depreciation.