A company uses the indirect method to prepare the statement of cash flows. How will a loss from the sale of a building be presented on the statement?
A)A loss from the sale of a building can be an addition in the investing activities section.
B)A loss from the sale of a building can be added to net income in the operating activities section.
C)A loss from the sale of a building can be deducted from net income in the operating activities section.
D)A loss from the sale of a building can be a deduction in the financing activities section.

Question

Quizplus · Accepted Answer

When using the indirect method to prepare the statement of cash flows, non-cash expenses and losses, such as a loss from the sale of a building, are added back to net income in the operating activities section. This is because the loss would have reduced net income, but it did not involve an outflow of cash in the operating activities.

A Company Uses the Indirect Method to Prepare the Statement