When preparing the operating activities section of the statement of cash flows using the indirect method,expenses and losses with no cash outflows are added back to net income.

Question

Quizplus · Accepted Answer

Expenses such as depreciation and amortization do not involve a cash outflow, so they need to be added back to net income when preparing the operating activities section of the statement of cash flows using the indirect method. Similarly, losses on the sale of assets or investments may involve a decrease in net income but no cash outflow, so they also need to be added back.

When Preparing the Operating Activities Section of the Statement of Cash