An increase of $100,000 in inventory would result in a (n) Increase in bonds payable. Decrease of net cash flow. Decrease in marketable securities. Increase in net cash flow.

Question

Pablo Miles

Business

6 February, 19:19

An increase of $100,000 in inventory would result in a (n) Increase in bonds payable. Decrease of net cash flow. Decrease in marketable securities. Increase in net cash flow.

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Sarah Navarro · Answer 1

Decrease of net cash flow

Explanation:

Underthe indirect method, we calculate the cash flow based on the change in working capital:

The inventory, which is an asset will be purchased with cash or cash equivalent. Therefore, an increase on inventory produce a decrease of net cash flow.

If the inventory is purchased on account then, It will increase account payable, which represent an increase on the net cash flow. This generates a net effect of zero, 100,000 for account payable - 100,000 for inventory.

Which is what happens when purchase on account are made.

However, here we are asked for an increase on inventory only. We should simply state that this will represent a decrease in the cash flow for 100,000.