when would the gain/loss be a part of CFO and when would it be a part of CFI?
im thinking that if it is a non-cash gain/loss it goes in CFO but if it is a cash gain/loss it is a part of CFI?
how would you tell the difference if so?
The gain or loss goes on the income statement, not on the statement of cash flows. The cash flow (i.e., proceeds from the sale) goes on the statement of cash flows. For a fixed asset that cash flow would be CFI.
using indirect method, though, loss on ppe sale would be added back to CFO whereas gain on ppe sale would be subtracted
but i have seen questions where an asset is sold, and any cash received in excess of carry value is added to CFI
whats causing this distinction? is it cash vs. non-cash gains/losses?
ok wait i think i have it!
“When recognizing a gain on the sale of fixed assets, the amount is a deduction to operating cash flows. This is because the gain would be double counted in the investing section and in net income. Therefore, the gain must be removed from net income. The direct method of cash flow calculation converts the income statement items to their cash equivalents, not the indirect method. Also, depreciation is added to net income in order to calculate CFO using the indirect method.”
so basically you book a gain/loss on fixed asset sale/disposal on the income statement, which affects net income, and as part of investing cash flows
if you use the indirect method this will double count the gain/loss so you need to adjust CFO for it!!
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The gain/loss that you record on the income statement is not from operations, so using the indirect method you reverse it (subtract a gain, add a loss) to get from net income to CFO
In CFI you include the proceeds from the sale, not the gain/loss.