Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881



Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem

What does an increase in inventory imply? How would this increase in inventory be reported under the indirect method?

To determine


The indirect method helps the company to convert accrual basis of accounting to cash basis by adjusting the net income. It can be done by adding back non-cash expenses such as depreciation on fixed asset, amortization, bad debts written off and any losses on the sale of a fixed asset and by subtracting net income such as profit from sale of asset, dividend received.

To state:

What do we mean by increase in inventory and where is it recorded in the cash flow statement using indirect method.


Increase in inventory means the company has purchased more inventory. It is the difference between inventory in the beginning to the inventory at the end. The increase in inventory means the purchase of inventory is more than the cost of inventory sold...

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