We need to add back to net income any loss on sale of long-term assets in the operating section of the statement of cash flows in order to eliminate the noncash component of net income.

Question

Quizplus · Accepted Answer

Loss on sale of long-term assets is a noncash expense and therefore needs to be added back to net income in order to eliminate its impact on the operating section of the statement of cash flows. This is because the operating section only accounts for cash transactions, and noncash items such as depreciation or loss on sale of assets can distort the true cash position of a company.

We Need to Add Back to Net Income Any Loss