Avatar Company uses the indirect method to prepare the cash flow statement.Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | }
\hline & { \mathbf { 2 0 1 7 } } & { \mathbf { 2 0 1 6 } } & { \text { Increase/decrease } } \
\hline \text { Cash } & \$ 33000 & \$ 18000 & \$ 15000 \
\hline \text { Accounts receivable } & 22000 & 35000 & ( 13000 ) \
\hline \text { Inventory } & 170000 & 115000 & 55000 \
\hline \text { Total assets } & \$ 225000 & \$ 168000 & \$ 57000 \
\hline
\end{array}$$
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:
 $$\begin{array} { | l | r | r | r | } 
\hline & { \mathbf { 2 0 1 7 } } &  { \mathbf { 2 0 1 6 } } & { \text { Increase/decrease } } \
\hline \text { Cash } & \$ 33000 & \$ 18000 & \$ 15000 \
\hline \text { Accounts receivable } & 22000 & 35000 & ( 13000 ) \
\hline \text { Inventory } & 170000 & 115000 & 55000 \
\hline \text { Total assets } & \$ 225000 & \$ 168000 & \$ 57000 \
\hline
\end{array}$$ 
The change in inventory will be shown as a positive cash flow in the adjustments to Profit.

Quizplus · Accepted Answer

The change in inventory would be shown as a negative adjustment to profit because an increase in inventory represents an outflow of cash from the business. Therefore, the correct answer would be B.

Avatar Company Uses the Indirect Method to Prepare the Cash