Under the Indirect Method Why Is a Gain on the Disposal

question 45

Multiple Choice

Under the indirect method why is a gain on the disposal of land subtracted from net income?

• A)Because it is not a cash expense.
• B)Because it is not a cash revenue.
• C)Because it is an investing activity.
• D)Because it is a financing activity.

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Definitions:

Bad Debt Expense

An expense reported on the income statement, representing the amount of receivables that a company does not expect to collect due to customer default.

Current Assets

Resources owned by a company that are expected to be converted into cash, sold, or consumed within one year or within the operating cycle of the business, whichever is longer.

Sales Discounts

A reduction in the price of goods or services offered to customers, usually as an incentive for early payment or bulk purchases.

Net Sales

The amount of sales generated by a company after deducting returns, allowances for damaged or missing goods, and discounts.