Wesley,Inc.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:
The change in Merchandise Inventory is shown as a negative cash flow in the adjustments to net income.

Question

Wesley,Inc.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:
  The change in Merchandise Inventory is shown as a negative cash flow in the adjustments to net income.

Quizplus · Accepted Answer

The change in Merchandise Inventory is a part of the adjustments to net income in the operating activities section of the statement of cash flows, and it is shown as a negative cash flow because an increase in inventory would have reduced the cash flow from operating activities. This is in line with the indirect method of preparing the statement of cash flows.