The correct answer is: C. no flow of funds
Depreciation is a non-cash expense that is used to allocate the cost of a fixed asset over its useful life. It is not a source or application of funds, as it does not involve any actual movement of money.
Option A is incorrect because depreciation is not an application of funds. An application of funds is an expenditure of money on something that will provide future benefits. Depreciation does not involve any actual expenditure of money, as it is simply a bookkeeping entry to allocate the cost of a fixed asset over its useful life.
Option B is incorrect because depreciation is not a source of funds. A source of funds is an inflow of money that can be used to finance an expenditure. Depreciation does not involve any actual inflow of money, as it is simply a bookkeeping entry to allocate the cost of a fixed asset over its useful life.
Option C is correct because depreciation does not involve any actual flow of funds. It is a non-cash expense that is used to allocate the cost of a fixed asset over its useful life.
Option D is incorrect because depreciation is a real economic event. It is not a mere accounting entry. It represents the decline in the value of a fixed asset over time due to wear and tear, obsolescence, and other factors.