Why does Depreciation, despite being a non-cash expense, impact cash balance?

Depreciation is considered a non-cash expense because it represents the allocation of the cost of a long-term asset over its useful life, rather than an immediate cash outflow. However, it impacts cash balance primarily because it reduces a company's taxable income. By lowering taxable income, depreciation results in a decrease in income tax liability.

As income tax expenses are lowered, the company's cash outflows for taxes are also reduced, leading to an increase in net cash flow. This relationship highlights why depreciation, while not directly affecting cash on hand, has significant implications for a company's overall cash position by reducing the amount that must be paid in taxes. Therefore, even though depreciation does not involve any cash movement at the time it is recorded, it has a strong influence on the company's cash flow by causing tax savings.

In this context, the other options do not accurately represent the role that depreciation plays in cash flow. For instance, stating that it is non-tax deductible is factually incorrect; depreciation is indeed tax deductible, which is why it has the opposite effect on cash flow by reducing tax expenses. Similarly, stating that it increases revenue generation does not relate directly to depreciation, as depreciation primarily concerns expense allocation rather than revenue generation. Lastly, indicating that it has