What characterizes depreciation and impairment in cash flow activities?

Depreciation and impairment are characterized as non-cash items, which is why this choice is the correct answer. Both depreciation and impairment relate to the allocation of the cost of tangible and intangible assets over time and their potential reduction in value, but they do not involve actual cash outflows at the time the expense is recorded.

Depreciation systematically allocates the cost of a fixed asset over its useful life, reflecting the wear and tear or usage of the asset. Similarly, impairment represents a permanent reduction in the carrying value of an asset when its market value drops below its book value, indicating that the asset is no longer expected to generate future economic benefits equal to its carrying amount.

Both of these accounting concepts are recorded in financial statements to reflect the true economic position of a company, thus influencing profit reported, but they do not involve any direct cash movement at the time they are recognized. Understanding this helps clarify their treatment in the context of cash flow activities, particularly in differentiating between operating cash flows, which do involve actual cash movements.

In contrast, cash transactions involve actual inflows and outflows of cash and are relevant to operational activities. Future projections pertain to forecasts and do not directly relate to the cash flow activities in the context of depreciation