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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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How is the sale of equipment at a loss reported on the statement of cash flows? Assume the indirect method is used to prepare the statement of cash flows.

To determine

Introduction:

The indirect method helps the company to convert accrual basis of accounting to cash basis by adjusting the net income. It can be done by again adding non-cash expenses such as depreciation on fixed asset, amortization, bad debts written off and any losses on the sale of a fixed asset and by subtracting net income such as profit from sale of asset, and the dividend received.

To state:

The way the sale of equipment at a loss is recorded on the statement of cash flows using indirect method.

Explanation

The loss on the sale of equipment is included as an adjustment in the cash flow from operating activities of the statement of cash flows as it does not involve cash. It is added back to the operating activities to convert the net income to cash provided by operating activities...

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