If a company uses the indirect method to determine net cash flows from operating activities:
A) gains must be added to net income and losses subtracted from net income.
B) gains and losses must be added to net income.
C) gains must be subtracted from net income and losses added to net income.
D) gains and losses must be subtracted from net income.

Question

Quizplus · Accepted Answer

Under the indirect method, gains are subtracted from net income and losses are added to net income when calculating net cash flows from operating activities. This is because gains and losses are non-cash items that are included in net income but do not affect the actual cash flows of the business. Therefore, they must be adjusted for in order to accurately determine the cash generated or used by operating activities.

If a Company Uses the Indirect Method to Determine Net