Elance Exams Answers PDF file

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

An increase in inventory indicates that a company has sold more goods than it has purchased. Increasing inventory requires a cash inflow. Cash inflows have a negative effect on the company’s cash balance.
An increase in inventory indicates that a company has purchased more goods than it has sold. Increasing inventory requires a cash outflow. Cash outflows have a negative effect on the company’s cash balance.
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