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,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 a large quantity of inventory will increase the accounts payable balance, which is a liability. As a result, when calculating cash flows from operations using the indirect method, this increase in accounts payable will be added back to net income because it is a non-cash expense. This adjustment will decrease cash flows from operations, not increase them.

Management Has Authorized the Purchase of a Large Quantity of Inventory