Management has authorized the purchase of a large quantity of inventory for early December.The purchase will have credit terms of 2/10,n/30,and they will authorize payment by the discount date.How will this decision affect the period's cash flows from operations-indirect method?
A)It will increase this period's cash flows from operations.
B)It will decrease this period's cash flows from operations.
C)It will not affect this period's cash flows from operations.
D)This does not affect cash flows from operations.

Question

Quizplus · Accepted Answer

The purchase of inventory will require cash outflows, which will decrease cash flows from operations in the period. However, if payment is made within the discount period, there will be a reduction in the cash outflows due to the discount received, but this will not completely offset the initial decrease in cash flows from operations. Therefore, the overall effect will be a decrease in cash flows from operations for the period.

Management Has Authorized the Purchase of a Large Quantity of Inventory