An increase in the Inventory account from $10,000 at the beginning of the year to $15,000 at the end of the year would be shown on the statement of cash flows prepared under the indirect method as:

A) an addition to net income of $5,000 in order to arrive at net cash provided by operating activities.
B) a deduction from net income of $5,000 in order to arrive at net cash provided by operating activities.
C) an addition to net income of $15,000 in order to arrive at net cash provided by operating activities.
D) a deduction from net income of $10,000 in order to arrive at net cash provided by operating activities.

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Presley Aliff · Accepted Answer

Final Answer : B, Explanation :  An increase in inventory of $5,000 would indicate that cash was used to purchase additional inventory, therefore it is a deduction from net income in order to arrive at net cash provided by operating activities. The indirect method adjusts for changes in current assets and liabilities by adding or subtracting them from net income.

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