Under the indirect method,a loss on the sale of equipment should be
A)added back to net income to arrive at cash flow from operating activities.
B)subtracted from net income to arrive at cash flow from operating activities.
C)a source of funds in the financing activities.
D)a source of funds in the investing activities.

Question

Quizplus · Accepted Answer

Under the indirect method, non-cash expenses and losses are added back to net income to reconcile it to net cash provided by operating activities. A loss on the sale of equipment is a non-cash expense that reduced net income but did not involve an outflow of cash during the period, so it is added back to net income.

Under the Indirect Method,a Loss on the Sale of Equipment