Explain how treatment of gains and losses on the sale of long-term assets differ between the indirect and direct methods.

Question

Quizplus · Accepted Answer

Under the indirect method of cash flow statement preparation, gains and losses on the sale of long-term assets are added to or deducted from net income to arrive at the net cash flows from operating activities. On the other hand, under the direct method, the sale of long-term assets is shown separately in the investing activities section of the cash flow statement, and any gains or losses are also reported separately.

Explain How Treatment of Gains and Losses on the Sale