Question

Assume that the Charleston Inc. uses the indirect method to depict cash flows. Indicate where, if at all, an inventory increase would be classified on the statement of cash flows. Does not represent a cash flow. Operating activities section. Financing activities section. Investing activities section.

Answer 1

Operating activities section

Step-by-step explanation:

In the indirect method of cash flow statements, current assets and current liabilities are adjusted with net income and non-cash items. It means changes in net working capital (Current assets - Current liabilities) fit with the net income in the operating cash flow section. Therefore, any decrease or increase is stated under the operating cash flow segment. Inventory increase will deduct from the net income because we spend more cash to acquire inventory.