I am struggling to understand that if Purchase/Sale of a building (long term asset) is considered a CFI, then why is “Loss on Sale of Building” considered CFO?
because it’s a non-cash expense and you need to back it out of CFO under indirect, just like depreciation.
Here are my 2 cents: Yes, Purchase/Sale of a building is considered a CFI activity. We backout this gain/loss only under indirect method. The reason being NI includes this gain/loss (under Unusal or Infrequent Items). Hope this clarifies.
my 2 cents also, in case it helps. the gain/loss on PPE is an accounting function, not an actual cash flow. it’s just something like the difference in the book value and the sale price. for example, the l/t asset could be on the books for $50k per it’s depreciation schedule, but sold for more or less than that depending on what you can get for it. this difference is recorded on the Income Statement as a gain or loss. since it’s not a cash flow, but included as part of NI, you have to deal with it when doing CFO from the indirect method. CFI includes the actual cash flow. which is the sale of the PPE. Whether it’s a gain or loss from an accounting perspective, you’re still getting cash, so it’s a positive cash inflow on CFI.
Purchase/Sale of a Building is CFI, right. It is never CFO, but if you calculate CFO per Net Income, you have to revise gains/losses from the deal because it is included in your net income. If you start with Sales-COGS you don`t make an adjustment!