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Why do we need to deduct gain on sale of plant assets from net income to...

Why do we need to deduct gain on sale of plant assets from net income to arrive at net cash flow from operating activities?

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Gain on sale of plant assets would have been already recorded in the income statement and this transaction would have already increased the net income. Thus, the net income to be reported in the cash flow from operating activities already includes the amount of gain. However, the total proceeds from the sale of plant assets is to be recorded in the cash flow from investing activities of the cash flow statement. Thus, to eliminate double counting, the gain on sale of plant assets is to be deducted from the net income. The deduction of gain on sale of plant assets from net income is termed as the adjustment to reconcile net income to net cash flow.

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