Final answer:
Using the indirect method, a loss on the sale of a capital asset is added back in the Operating Activities section of the statement of cash flows to adjust net income for non-cash items.
Step-by-step explanation:
When using the indirect method of preparing a statement of cash flows, a loss on the sale of a capital asset is added in the Operating Activities section. The reason for this treatment is that the loss would have been included in the net income calculation on the income statement, reducing the net income. However, the loss did not result in an outflow of cash during the period. Therefore, by adding back the loss, we are adjusting the net income to arrive at the net cash provided by operating activities.