When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the inventory account?
A) Deduct the increase to cash payments to suppliers
B) Add the increase to net income
C) Add the increase to cash collections from customers
D) Deduct the increase from net income

Question

Quizplus · Accepted Answer

To simplify,assuming that inventory is purchased for cash,an increase in the Inventory account occurs because the amount of cash paid to purchase inventory is more than the amount of cost of goods sold recognized on the income statement.Since the amount of cash paid is greater than the expense recognized,the increase is deducted from net income to determine net cash flow from operating activities.
cash,an increase
Wording changed.JMF
cash,an increase
Wording changed.JMF

When Using the Indirect Method to Complete the Cash Flows