1. Indicate whether the following will have a positive or negative EFFECT ON CASH.
A positive effect could also be thought of as a source of cash, an increase in cash, or a positive
amount on the cash flow statement. A negative effect could also be thought of as a use of cash, a
decrease in cash, or a negative amount on the cash flow statement. For an answer, either write
"positive" or "negative".
j. The Gain on the Sale of Equipment formerly used in the business?
Solution
Negative effect on cash flow statement.
Reason : The gain on sale of equipment caused a increase in net income on the income statement.
Therefore while calculating cash flow from operating activity , The gain is subtracted as
adjustment to net income Being part of investing activity.