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hen using the indirect method of reporting the Statement of Cash Flows, gains are deducted and losses are added back due to the following rationale: Including the gain in operating activities would overstate the amount of cash received on the asset disposal. Gains do not provide cash and losses do not use cash. The statement is incorrect because gains should be added and losses should be deducted in the operating activities section. The gains and losses are non-cash events: These gains and losses are not part of operations. The only cash flow related to the gain or loss is most likely included in investing activities: This adjustment only occurs when the direct cash flow method is used