A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007 financial statements.
*Relates solely to the acquisition of inventory
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What will appear in the operating activities section related to inventory?

Question

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007 financial statements.
 *Relates solely to the acquisition of inventory
-
What will appear in the operating activities section related to inventory?

Quizplus · Accepted Answer

A decrease in inventory is considered a use of cash if using the indirect method for the statement of cash flows. Therefore, it is added back to net income in the operating activities section to adjust for the fact that the decrease in inventory did not use cash during the period.

A Company Uses the Indirect Method to Prepare the Statement