Question

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by used by operating activities?
a. Decrease in accounts receivable
b. Gain on sale of land.
c. Amortization of patent
d. All of the above are deducted from net income to arrive at cash flow from operating activities

Answer 1

Answer:

B

Explanation:

When using the indirect method to prepare the operating section of a statement of cash flows , the gain on sale of land will be deducted from the net income as it has already been included in the net income as the gain on the sales of the land , which was a non cash recognition in the course of the business.

Decrease in receivable means that there was an inflow of cash as some receivables had paid their debts , thus it is added.

The amortization is a non cash expenses that had been deducted which will need to be added back to the net income for the purpose of cash flow.