In Year 8, Global Marketing Corporation had a net increase in inventories of $50,000.The T-account work sheet for preparing the statement of cash flows
A)adds this change in inventory in deriving cash flow from operating activities.
B)adds this change in inventory in deriving cash flow from financing activities.
C)subtracts this change in inventory in deriving cash flow from operating activities.
D)subtracts this change in inventory in deriving cash flow from financing activities.
E)subtracts this change in inventory in deriving cash flow from investment activities.

Question

Quizplus · Accepted Answer

The change in inventory is a component of operating activities, as it represents the difference between purchases and sales of goods during the period. Therefore, it needs to be added back in the calculation of cash flow from operating activities. As the question states that there was a net increase in inventories (i.e., inventory increased by $50,000), this amount needs to be subtracted from net income to derive the cash flow from operating activities.

In Year 8, Global Marketing Corporation Had a Net Increase