Hello - I had a question on the standard "walk me through $10 of deprecation for each of the financial statements" question.
Assuming a 20% tax rate. I know that we would have,
IS: Net Income down by 8
CFS: Cash Up by 2 (Net Income Down by 8, add 10 of depreciation back)
BS: Cash Up by 2, PPE down by 10, Retained Earnings down by 8
My question is - why does cash go up by 2? I understand that we add back depreciation to the CFS and that the positive 2 we add to cash represents the tax break for the depreciation expense, but unlike paying taxes, where we definitely lose cash, we don't actually receive cash for this tax break unless I'm mistaken. So why would we increase our cash account (assuming that this depreciation expense was the only transaction to happen during the year)?