Question

In a direct method cash flow statement, an increase in inventory would: A. decrease cash paid...

In a direct method cash flow statement, an increase in inventory would:

A. decrease cash paid to suppliers.

B. have no impact on cash paid to suppliers.

C. increase cash paid to suppliers.

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Homework Answers

Answer #1

Option B. have no impact on cash paid to suppliers.

1. Relationship of Inventory and Suppliers

Closing Inventory = Opening inventory + Purchases - Cost of goods sold

Closing Suppliers balance = Opening Suppliers balance + Purchases - Amount paid to suppliers

in the above mentioned formula, the relation between suppliers and inventory exists because of purchases. in our question inventory is increased, it might happen due to less cost of goods sold but it wont effect the purchases which inturn won't have any affect on suppliers balance.

Thus option B is correct

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