Suppose that you are Dear FASB, the question-and-answer person for a magazine called Rural Business. Rural Business is a magazine devoted to serving the needs of small and medium sized businesses in rural communities. Readers of your magazine are invited to submit letters to Dear FASB, who offers advice in "Dear Abby" style in a special section of the magazine. Your editors policy is to require revision whenever she believes a nonaccountant would have difficulty understanding a response. One day you receive the following letter:

Dear FASB: Why does the cash flow statement do everything my old accounting instructors deducted me for? When I took accounting in college, gains and losses were measured by the difference between what was received in disposal and the book value of the item. When I review cash flow statements, the total proceeds is listed as a gain on the cash flow statement in the investing activity section. For example, lets assume that XYZ Industries has an automobile with a book value of $1,600. It then sells this automobile to ABC for $2,000. The income statement would report a gain of $400, yet the cash flow statement would report a gain of $2,000. What gives? Isnt accounting supposed to be consistent in its treatment of transactions? Another item that is confusing is depreciation. Its clearly listed in the income statement as an expense, yet it doesnt appear in the body of the cash flow statement. What happens to the cash set aside to replace the asset when it becomes unproductive? If the cash flow statement doesnt report this fund, how can I, a potential stockholder, know how effectively management is providing for replacement of productive assets?

Sincerely, Cash Flushed

Required: Your task is to write an answer to Cash Flushed. Because space in your magazine is limited, restrict your answer to 230 words in the body of the response. The document must have reasonable margins and font setting.