When preparing the operating activities section of the statement of cash flows using the direct method,net income must be adjusted for gains or losses realized when property,plant,and equipment is sold.

Question

Quizplus · Accepted Answer

The direct method converts revenues to cash inflows and expenses to cash outflows.Since a gain is a noncash revenue and a loss is a noncash expense,they would not appear in the operating activities section of the statement of cash flows prepared using the direct method.

When Preparing the Operating Activities Section of the Statement of Cash