The following information pertains to Brockville Inc.for 2014.If Brockville prepares their cash flow statement using the indirect method, what adjustment to the net income will be made for the year for Brockville when calculating their cash flow from operations? $$\begin{array} { l r }
\text { Inventory January 1, } & \$ 300,000 \
\text { Inventory December 31, } & \$ 335,000 \
\text { Accounts payable January 1 } & \$ 45,000 \
\text { Accounts payable December } 31 & \$ 48,000 \
\text { Cost of goods sold during 2014 } & \$ 2,400,000
\end{array}$$

Question

The following information pertains to Brockville Inc.for 2014.If Brockville prepares their cash flow statement using the indirect method, what adjustment to the net income will be made for the year for Brockville when calculating their cash flow from operations? $$\begin{array} { l r } 
\text { Inventory January 1, } & \$ 300,000 \
\text { Inventory December 31, } & \$ 335,000 \
\text { Accounts payable January 1 } & \$ 45,000 \
\text { Accounts payable December } 31 & \$ 48,000 \
\text { Cost of goods sold during 2014 } & \$ 2,400,000
\end{array}$$

Quizplus · Accepted Answer

The increase in inventory ($35,000) indicates that more inventory was purchased than sold, which is a use of cash and thus deducted from net income. The increase in accounts payable ($3,000) indicates that not all purchases were paid for in cash, reducing the cash outflow. The net adjustment is the increase in inventory ($35,000) minus the increase in accounts payable ($3,000), resulting in a $32,000 deduction from net income.

The Following Information Pertains to Brockville Inc A)$35,000 Added to Net Income B)$35,000 Deducted from Net Income

The Following Information Pertains to Brockville Inc A)$35,000 Added to Net Income
B)$35,000 Deducted from Net Income