gain on sale of assets

Why, in the indirect cash flow method, is a gain on a sale of an asset subtracted from the cash flow – or conversly, why is a loss on a sale added to the cash flow?

CFO - gain CFI = CFI + sales(including gains) I think you’re talking about CFO having gains added back. because it’s already accounted for in the sales of the asset in CFI.

it is present in NI, but is not an actual cash flow that can be attributed due to operation of the company. So you take it out. It is a non-cash component. edited and added; also when you include the Sale of Asset component in the CFI, it would be double counting the gain / loss. CP

Coz you start with Net Income which includes effects of gain/loss on assets that are non-cash transactions in nature.

Disregard the above post. Exclusion from CFO is due to the non-operating nature of the cash flows associated with gain/loss on sale of assets. On the other hand, both gains and losses play a role in determining CFI. Cash inflow (collection) is directly affected by gain/loss. Just remember that gain/loss = Selling Price - Book Value Selling price is cash inflow. Book Value is equal to Historical Cost of Asset - Accumulated Depreciation