In determining cash flows from operating activities (indirect method), adjustments to net income should not include:
A) An addition for depreciation expense.
B) An addition for bond discount amortization.
C) An addition for a gain on sale of equipment.
D) An addition for patent amortization.

Question

Quizplus · Accepted Answer

In the indirect method of calculating cash flows from operating activities, non-cash expenses like depreciation and amortization (choices A, B, and D) are added back to net income because they reduce net income but do not involve an outflow of cash. However, gains on the sale of equipment (choice C) are deducted from net income because they represent a cash inflow that is not part of operating activities but rather an investing activity.

In Determining Cash Flows from Operating Activities (Indirect Method), Adjustments