When Apple orders $10 of additional iPod inventory using cash, what change occurs in Cash Flow Statement?

When Apple orders $10 of additional iPod inventory using cash, what change occurs in Cash Flow Statement?

• A. Cash flow increases by $10
• B. Cash flow decreases by $10
• C. No change in cash flow
• D. Cash flow increases by $20

Answer: (B)

When Apple orders $10 of additional iPod inventory and pays for it using cash, there is an outflow of cash that directly impacts the Cash Flow Statement. This transaction involves an expense that will be recorded under operating activities. In this case, paying for inventory is classified as a cash outflow because cash is leaving the company to pay for the goods. Consequently, the cash flow from operating activities will decrease by the amount of the inventory purchase, which is $10. This decrease reflects a reduction in the cash balance as the company has spent cash to acquire assets that are intended to generate revenue in the future. Understanding the relationship between cash flow and inventory is crucial in investment banking and financial analysis, as it highlights how operational decisions impact liquidity.

When Apple orders $10 of additional iPod inventory and pays for it using cash, there is an outflow of cash that directly impacts the Cash Flow Statement. This transaction involves an expense that will be recorded under operating activities.

In this case, paying for inventory is classified as a cash outflow because cash is leaving the company to pay for the goods. Consequently, the cash flow from operating activities will decrease by the amount of the inventory purchase, which is $10. This decrease reflects a reduction in the cash balance as the company has spent cash to acquire assets that are intended to generate revenue in the future.

Understanding the relationship between cash flow and inventory is crucial in investment banking and financial analysis, as it highlights how operational decisions impact liquidity.