When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows, what is the proper disposition of a loss on disposal of equipment? Multiple Choice Add the loss to net income. Disregard the loss because it relates to a financing activity. Disregard the loss because it relates to an investing activity. Subtract the loss from net income.

Question

Avery

Business

13 July, 18:58

When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows, what is the proper disposition of a loss on disposal of equipment? Multiple Choice Add the loss to net income. Disregard the loss because it relates to a financing activity. Disregard the loss because it relates to an investing activity. Subtract the loss from net income.

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Answers (1)

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Ayana Mueller · Answer 1

The answer in this case, would be the last option mentioned in the answer choice or Subtract the loss from net income.

Explanation:

In Accounting, under the indirect method of estimating or calculating the cash flow, the initial net cash flow is determined that is registered in the course of all the operating activities in business. Any initial net income or net loss is registered in the beginning under the indirect method of completing the cash flow from operating activities. Any non-cash costs or expenses such as depreciation of physical assets and equipment or amortization are added into the initial net income level. Now, any earnings or loss from the disposal of long term assets are subtracted from the net income to determine cash flow of operating activities.