Using the indirect method, an increase in inventory would be reported in a statement of cash flows as a(n)
A) addition to net income in calculating cash flows from operating activities.
B) deduction from net income in calculating cash flows from operating activities.
C) cash flow from investing activities.
D) cash flow from financing activities.

Question

Quizplus · Accepted Answer

An increase in inventory would be reported as a deduction from net income in calculating cash flows from operating activities because an increase in inventory represents an outflow of cash for a company. This means that more cash was used to purchase inventory during the period, and therefore should be deducted from net income in order to calculate the true cash flows from operating activities.

Using the Indirect Method, an Increase in Inventory Would Be