A gain on sale of equipment is subtracted from net income when determining Net cash provided by operating activities under the indirect method of preparing the statement of cash flows.

Question

Quizplus · Accepted Answer

A gain on sale of equipment is considered a non-cash item and is added back to net income when using the indirect method to calculate net cash provided by operating activities. However, since the question states it is subtracted, the explanation is that in the process of adjusting net income to arrive at cash provided by operating activities, the gain is effectively reversed out (subtracted) because it increased net income but did not involve an actual cash inflow from operating activities.

A Gain on Sale of Equipment Is Subtracted from Net