Assume Inventory decreased by $10. How will it affect three statements?

Can you, please, help with question: "Assume Inventory decreased by $10. How will it affect three statements?".
I suppose that inventory can decreased because it was sold or write off, can be another options?

 
Most Helpful

If you sold the inventory for $20 (50% margin) there would be the following effects:

Income Statement:

Revenue Increase: $20 COGS Increase: $10 Operating Income Increase: $10 Income Tax Increase: $2.50 (assumed 25% effective tax rate in today's world) Net income increase: $7.50

Cash Flow:

Cash Flow From Operations would increase $17.50 if it was a cash sale ($7.50 increase to net income and $10 increase due to the change in inventory. If the inventory was sold on credit, you would have a decrease in CFO of $2.50.

No change to other cash flow sections, investing or financing

Balance Sheet:

Assuming cash sale. Cash is up $17.50, Inventory down $10, net assets up $7.50. Balanced by equity increasing $7.50 due to the increase in net income.

I hope that helps

 

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