Identify the correct statement regarding how depreciation expense affects the statement of cash flows.

Multiple choice question.

Depreciation is included in accrual$-$basis net income and affects operating cash flows.

Depreciation expense must be added back to accrual$-$basis net income using the indirect method.

Depreciation expense must be added back to accrual$-$basis net income using the direct method.

Since depreciation expense does not affect cash, it is disregarded on the statement of cash flows.