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Why is an increase in inventory shown as a negative amount in the statement of cash flows?

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Question added by sameer parkar , Senior Accountant , Al Andalus Trading Company
Date Posted: 2014/03/23
Rajesh Perumbadari
by Rajesh Perumbadari , Joint Venture Audit Accountant , Kuwait Foreign Petroleum Exploration Company

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.

Yusuf Dalal
by Yusuf Dalal , General Accountant. , Gmamco Contracting LLC

Increase in the Inventory indicates that more purchases are being made which then ultimately directly or indirectly effect the cash flow... 

Saad fajene
by Saad fajene , financial project manager , Mercedes Benz Bank

Yes cause we use money to bring this inventory

Osamah Al-amodi
by Osamah Al-amodi , Senior Financial specialist , SAL

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 .

 

SHAIKH MOHAMMED BASHEER AHMED SHAIKH
by SHAIKH MOHAMMED BASHEER AHMED SHAIKH , Account Manager , Tarik Al Zahid Holding Company

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.

Ghulam Sohaib Khan ACA
by Ghulam Sohaib Khan ACA , Finance Controller , Armacell Middle East Company

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.

Salim Waghoo
by Salim Waghoo , Senior Accountant/Financial Controller , Global Hardware & Tools LLC

Increase in Inventory which are not used in Production for a long time and which blocks money .

montasser Mohamed Salah El-Din Haseip
by montasser Mohamed Salah El-Din Haseip , Financial & Banking Consultant , Omega Grop

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

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