When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows, what is the proper disposition of a loss on disposal of equipment?
A)Disregard the loss because it relates to an investing activity.
B)Disregard the loss because it relates to a financing activity.
C)Subtract the loss from net income.
D)Add the loss to net income.

Question

Quizplus · Accepted Answer

Because losses reduce net income, but do not use cash from operating activities, they are added back to net income to arrive at cash flows from operating activities.

When Using the Indirect Method to Complete the Cash Flows