Question

The statement of cash flows for Baldwin Company shows what happens in the Cash account during the year. It can be seen as a summary of the sources and uses of cash (sources of cash are added, uses of cash are subtracted). Please answer which of the following is true if Baldwin's inventory goes up: Select: 1 It is a source of cash and will be shown in the operating section as an addition. It is a source of cash, and will be shown in the investing section as an addition. It is a use of cash, and will be shown in the operating section as a subtraction. It is a use of cash, and will be shown in the investing section as a subtraction.

Answer 1

It is a use of cash, and will be shown in the operating section as a subtraction.

Step-by-step explanation:

When a Baldwin Company purchases inventory they do so using cash. If their inventory goes up in order to maintain balance the cash will go down. Inventory is usually the items they sell in ordinary course of business and is sold and replenished frequently while operating the company. Therefore it falls under operating activities