What is the net adjustment to net income with respect to the determination of cash flows from operating activities when inventory increases $100,000 and accounts payable increases $20,000?
A)An increase of $120,000.
B)A decrease of $120,000.
C)An increase of $80,000.
D)A decrease of $80,000.

Question

Quizplus · Accepted Answer

When inventory increases by $100,000, it means more money was spent on inventory than was sold during the period. This results in a decrease in cash flow from operating activities. Similarly, when accounts payable increases by $20,000, it means less money was paid to suppliers than was purchased during the period. This results in an increase in cash flow from operating activities. The net adjustment can be calculated by subtracting the increase in accounts payable from the increase in inventory: $100,000 - $20,000 = $80,000. Therefore, the net adjustment to net income is a decrease of $80,000.

What Is the Net Adjustment to Net Income with Respect