Under the indirect method, when calculating cash flows from operating activities, a gain on the sale of equipment is:
A) subtracted from net income.
B) added to net income.
C) only the proceeds are added to net income.
D) ignored since this transaction does not affect cash.

Question

Quizplus · Accepted Answer

A gain on the sale of equipment is a non-cash transaction that increases net income, but it does not represent an inflow of cash. Therefore, it needs to be subtracted from net income when using the indirect method to calculate operating cash flows.

Under the Indirect Method, When Calculating Cash Flows from Operating