When preparing a statement of cash flow using the indirectmethod, I know we start...

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Accounting

When preparing a statement of cash flow using the indirectmethod, I know we start with the net income amount from the incomestatement and make adjustments to non cash expenses such asdepreciation and amortization. My question is, why is cost of goodssold not included in these non cash expenses? It is a non-cashexpense, is it not? A customer could purchase an item on credit,and we would debit cost of goods sold without any cash exchanginghands. So why do we leave this number alone when making adjustmentsto net income using the indirect method?

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Solution You are right that cost of goods sold could also be a non cash expense as we can purchase items on credit However same is not added to net income considering it as non cash expenses The reason is that while preparing statement of cash flow using indirect method net income is adjusted to determined cash See Answer

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In: AccountingWhen preparing a statement of cash flow using the indirectmethod, I know we start with...When preparing a statement of cash flow using the indirectmethod, I know we start with the net income amount from the incomestatement and make adjustments to non cash expenses such asdepreciation and amortization. My question is, why is cost of goodssold not included in these non cash expenses? It is a non-cashexpense, is it not? A customer could purchase an item on credit,and we would debit cost of goods sold without any cash exchanginghands. So why do we leave this number alone when making adjustmentsto net income using the indirect method?