Under the indirect method,a decrease in inventory is subtracted from net income because inventory purchases are less than cost of goods sold.

Question

Quizplus · Accepted Answer

Under the indirect method, a decrease in inventory is added to net income because it implies that more inventory has been sold than purchased, reducing the cash outflow for inventory purchases and indicating that part of the cost of goods sold has been financed from existing inventory rather than cash purchases.

Under the Indirect Method,a Decrease in Inventory Is Subtracted from Net