In a statement of cash flows (indirect method), an increase in inventories should be presented as
A) an inflow of cash.
B) an inflow and outflow of cash.
C) an addition to net income.
D) a deduction from net income from continuing operations.

Question

Quizplus · Accepted Answer

An increase in inventories represents an outflow of cash because the company has spent money to purchase additional inventory. However, this does not impact net income from continuing operations. Therefore, the increase in inventories is deducted from net income to arrive at operating cash flows.

In a Statement of Cash Flows (Indirect Method), an Increase