In preparing the Cash flows from operating activities section of the statement of cash flows by the indirect method, the net decrease in inventories from the beginning to the end of the period is added to net income for the period.

Question

Quizplus · Accepted Answer

The decrease in inventories represents a use of cash, so it needs to be added back to net income in order to reconcile the change in cash from operating activities.

In Preparing the Cash Flows from Operating Activities Section of the Statement