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29 March, 12:31

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, and they will authorize payment by the discount date. How will this decision affect the period's cash flows from operations-indirect method?

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  1. 29 March, 14:31
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    It will decrease the cash flow

    Explanation:

    The purchase of inventory will make the inventory increase, therefore on the indirect method, when adjusting for the working capital, the increase on invneotry will be considered a use of cash in operating activities:

    net income

    adjustment on net income

    adjuste net income X

    change in working capital

    Increase on iventory (Y)

    other current increase and decreases ...

    This purchase decrease the cashflow, as it is using cash to purchase an asset.
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