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Gains and losses on the sale of long-term assets represent common items needing adjustment under the indirect method. This statement is true.
One of two accounting techniques used to construct a cash flow statement is the indirect approach .By adding and subtracting balance sheet line items, the indirect method converts the operational portion ofthe cash flow statement from accounting's accrual technique to cash method.
The direct technique, which details actual cash inflows and outflows made during the reporting period, is another alternative for producing a cash flow statement. In practice, the indirect technique is more generally adopted, particularly by bigger organizations.
Investors, creditors, and other stakeholders pay particular attention to a company's sources and uses of cash on the cash flow statement. It provides details on the cash generated by various operations and illustrates how adjustments to the asset and liability accounts affect a company's cash situation.
The statement of cash flows for the indirect method starts with net income or loss and then adds or subtracts from that amount non-cash revenue and cost elements to arrive at cash flow from operating activities.
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