A gain on sale of equipment is subtracted from net income when determining Net Cash Provided by Operating Activities under the indirect method.

Question

Quizplus · Accepted Answer

This is because a gain on sale of equipment is considered a non-cash activity and therefore needs to be adjusted for when calculating the net cash provided by operating activities using the indirect method. Specifically, the gain on sale of equipment is added back to net income to reverse the effect of the transaction on net income, and the proceeds from the sale of equipment are subtracted from this adjusted net income to arrive at the net cash provided by operating activities.

A Gain on Sale of Equipment Is Subtracted from Net