Under the indirect approach adjustments must be made to net income in the operations section for all of the following items, except
A) depreciation.
B) gain on the sale of equipment.
C) loss on the sale of land.
D) proceeds for the sale of temporary investments.

Question

Quizplus · Accepted Answer

The indirect approach for the cash flow statement starts with net income and then adjustments are made for non-cash transactions and changes in working capital. Depreciation (A) is added back to net income because it is a non-cash expense. Gains (B) and losses (C) on the sale of assets are adjusted because they are included in the net income calculation but do not affect cash flow from operations directly; instead, they are reflected in the investing section of the cash flow statement. Proceeds from the sale of temporary investments (D) are not adjusted in the operations section because they relate to investing activities, not operating activities.

Under the Indirect Approach Adjustments Must Be Made to Net