Question

Why are gains and losses from asset sales removed from net income when calculating the cash flows from operating activities?

a. Selling assets is a noncash item.
b. Gains and losses from asset sales are a financing activity.
c. Gains and losses are not removed from net income when calculating the cash flows from operating activities
d. The entire proceeds from sales of long-lived assets are included in investing activities.

Answer 1

Gains and losses from asset sales are removed from net income when calculating the cash flows from operating activities because they are noncash items.

Step-by-step explanation:

When calculating the cash flows from operating activities, gains and losses from asset sales are removed from net income because selling assets is a noncash item. This means that the gains or losses are not actual cash inflows or outflows in the operations of the business.