Question

An increase in the Inventory account from $10,000 at the beginning of the year to $15,000...

An increase in the Inventory account from $10,000 at the beginning of the year to $15,000 at the end of the year would be shown on the statement of cash flows prepared under the indirect method as:

Multiple Choice

a deduction from net income of $5,000 in order to arrive at net cash provided by operating activities.

an addition to net income of $5,000 in order to arrive at net cash provided by operating activities.

an addition to net income of $15,000 in order to arrive at net cash provided by operating activities.

a deduction from net income of $10,000 in order to arrive at net cash provided by operating activities.

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Answer #1

An increase in the Inventory account from $10,000 at the beginning of the year to $15,000 at the end of the year would be shown on the statement of cash flows prepared under the indirect method as:

- a deduction from net income of $5,000 in order to arrive at net cash provided by operating activities.

As, this will tend to have a negative impact on the cashflows, as the increase in stock levels would mean we have higher cash outflow by 5000 during the year

Please let me know for any further information :)

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