When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities?
A) Decrease in accounts receivable.
B) Gain on sale of land.
C) Amortization of patent.
D) All of the above are deducted from net income to arrive at cash flow from operating activities.

Question

Quizplus · Accepted Answer

B) Gain on sale of land is deducted from net income because it is a non-cash item that increased net income. The indirect method starts with net income and then adjusts for non-cash transactions and changes in working capital to arrive at cash provided by operating activities.

When Using the Indirect Method to Prepare the Operating Section