Avatar Company uses the indirect method to prepare the cash flow statement.Please refer to the following section of the comparative balance sheet:
$\begin{array}{|l|r|r|r|}
\hline & {2017} &{2016} &{\text { Increase/decrease }} \
\hline \text { Cash } & \$ 33000 & \$ 18000 & \$ 15000 \
\hline \text { Accounts receivable } & 22000 & 35000 & (13000) \
\hline \text { Inventory } & 170000 & 115000 & 55000 \
\hline \text { Total assets } & \$ 225000 & \$ 168000 & \$ 57000 \
\hline
\end{array}$ The change in inventory will be shown as a positive cash flow in the adjustments to Profit.

Question

Avatar Company uses the indirect method to prepare the cash flow statement.Please refer to the following section of the comparative balance sheet:
 $\begin{array}{|l|r|r|r|}
\hline & {2017} &{2016} &{\text { Increase/decrease }} \
\hline \text { Cash } & \$ 33000 & \$ 18000 & \$ 15000 \
\hline \text { Accounts receivable } & 22000 & 35000 & (13000) \
\hline \text { Inventory } & 170000 & 115000 & 55000 \
\hline \text { Total assets } & \$ 225000 & \$ 168000 & \$ 57000 \
\hline
\end{array}$ The change in inventory will be shown as a positive cash flow in the adjustments to Profit.

Quizplus · Accepted Answer

In the indirect method, an increase in inventory is shown as a negative adjustment to profit because it represents a use of cash.

Avatar Company Uses the Indirect Method to Prepare the Cash