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Increase in inventory in terms means outflow of cash. The net impact is, in case the inventory value of current year is more than that of previous year, it means you have purchased more inventory, result in outflow of cash.
Increase in the Inventory indicates that more purchases are being made which then ultimately directly or indirectly effect the cash flow...
Yes cause we use money to bring this inventory
simple.increase in inventory means good purchase have occurred. Which means casf-outflow ( if purchase has been mad in cash)
if purchase have been made on credit , the increase in trade payable will offset the different .
Yes cash paid towards purchsing an inventory. Definetely cash will become negative, since its decreased towards purchasing an inventory.
As the double entry system of accounting:
Inventory debit
cash credit
So while inventory increases, cash balance deceases, since showing cash balance negative.
All the negative figures in cash flow statement represents outflow of cash and positive represents inflow of cash, therefore inventory purchased through cash will be shown as a negative figure.
Increase in Inventory which are not used in Production for a long time and which blocks money .
I agree with the answers of gentlemen members and I would like to add an important thing .. the equation, which is building upon the cash flow statement shows the following: - - In the statement of cash flows, the increase in assets included negative. - The decline in liabilities included positive .- The opposite is true in both cases.
Montasser Mohamed Salah
Financial & Banking Consultant
