In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is

A. ignored because it does not affect cash.

B. added to net income.

C. deducted from net income.

D. not reported on a statement of cash flows.

C.

Explanation:

'Cash Flow Statement' is one of major financial statement that indicates the inflow and outflow of cash along with the reasons by categorizing each cash transaction in three activities i. e., operating, investing or financing activity. Non-cash transactions are not considered while preparing a cash flow statement.

Operating Activities records the cash transactions involved in the operations of the business are recorded under 'operating activities' in the cash flow statement.

Examples: Revenue earned, expenses incurred etc.

There are two methods to prepare the cash flow statement. The only difference between both the methods is the way of presenting cash flow from operating activities.

The two methods of presenting cash flow statement are:

Direct method: Operating activities section under direct method reports the amount of cash received and paid by the company during the period. Indirect method: Operating activities section under indirect method reports the net income and later adjusts the transactions to convert it to cash basis of accounting.

Gain on sale of equipment is shown as a deduction from net income under operating activities section of cash flow statement.