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