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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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The gain on sale of equipment is deducted from net income to arrive at operating cash flows because

  1. a. the sale of long-term assets is an operating activity.
  2. b. the gain reveals the total cash received.
  3. c. all of the cash received from the sale is reported in the operating section.
  4. d. All of these.
  5. e. None of these.

To determine

Identify the reason for which the gain on sale of equipment is deducted from the net income to obtain the operating cash flows.

Explanation

Operating Cash Flow:

The cash flow obtained from the operational and profit generating activities in a firm are termed as the operating cash flow. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

a.

The sale of long-term assets is not an operating activity. It is an investing activity. The gain on sale of equipment is hence not deducted from the net income to arrive at operating cash flows. Therefore, a is not the correct option.

b.

The gain on the sale of equipment does not reveal the total cash received...

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