When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is added to net income to compute cash provided by/used by operating activities?
A) Increase in accounts receivable.
B) Gain on sale of land.
C) Amortization of patent.
D) All of these are added to net income to arrive at cash flow from operating activities.

Question

Quizplus · Accepted Answer

Amortization of patent is a non-cash expense that is added back to net income in the operating section of the cash flow statement when using the indirect method. This adjustment is made because the expense reduces net income but does not involve an outlay of cash.

When Using the Indirect Method to Prepare the Operating Section