According to the statement of cash ﬂows, an increase in inventory will _____ the cash ﬂow from _____ activities.
A) Decrease; ﬁnancing.
B) Decrease; operating
C) Increase; ﬁnancing.
D) Increase; investing.
E) Increase; operating.

Question

Quizplus · Accepted Answer

An increase in inventory means that the company has spent cash to purchase more goods to sell. This is an operating activity, as it is part of the everyday operations of the business. However, since cash is going out (to purchase inventory), this will decrease the cash flow from operating activities.

According to the Statement of Cash ﬂOws, an Increase in Inventory