When preparing a reconciliation of net income to cash from operations,an increase in the ending inventory over the beginning inventory will result in an adjustment to reported net income because
A) cash is increased because inventory is a current asset.
B) inventory is an expense deducted in computing net earnings,but is not a use of cash.
C) the net increase in inventory is part of the difference between cost of goods sold and cash paid to suppliers.
D) all changes in noncash accounts must be disclosed.

Question

Quizplus · Accepted Answer

The net increase in inventory indicates that the company has more inventory at the end of the period than at the beginning, which suggests that the company has purchased more inventory than it has sold (in terms of cost of goods sold). This difference is part of the reconciliation between the cost of goods sold (an expense that reduces net income) and the actual cash paid to suppliers, as not all inventory purchased might have been sold within the period.

When Preparing a Reconciliation of Net Income to Cash from Operations,an