How does depreciation and ammortisation end up on cash flow

[Benbay001]

Quick question i cant get my head around.

How does depreciation and ammortisation end up as a cash inflow on a cash flow statement? Is it because he money is claimed back from tax?

Or is it simply to make the balance sheet balance and the money doesnt actually come from anywhere?

Thank you

[ninja-lewis]

The indirect method of preparing a cash flow statement starts from profit in the P&L (either total profit or operating profit. Depreciation and amortisation expenses have been included when working out that profit figure in the P&L. However they are non-cash expenses (there are no cash flows associated with them) so one of the first steps is to add back the depreciation and amortisation as one of the adjustments to profit to arrive at operating cash flows.

[surbiton]

A cash flow statement usually starts with the net profit / profit before tax, from the P&L.

As D&A are a ‘non-cash’ item on the P&L, you add them back to the net profit as part of calculating the cash flow.

[Benbay001]

Makes total sense! Had never noticed they were being added back! Thanks for the explanations.