A company uses the indirect method to prepare the statement of cash flows. Which of the following items would be subtracted from net income to determine the net cash flow from operating activities on the statement of cash flows?
A)An increase in dividends payable would be subtracted from net income to determine the net cash flow from operating activities in the statement of cash flows.
B)A loss on the sale of equipment would be subtracted from net income to determine the net cash flow from operating activities in the statement of cash flows.
C)A gain on the sale of equipment would be subtracted from net income to determine the net cash flow from operating activities in the statement of cash flows.
D)Depreciation expense would be subtracted from net income to determine the net cash flow from operating activities in the statement of cash flows.

Question

Quizplus · Accepted Answer

A gain on the sale of equipment is subtracted from net income in the indirect method because it is a non-cash item that increased net income, but did not affect cash flows from operating activities.

A Company Uses the Indirect Method to Prepare the Statement