Basic Technical Question


I am trying to understand my accounting technicals for a long time and I have always struggled with the accounting side of IB questions. I am comfortable with valuation questions, merger, and LBO questions. But it seems the "easy" accounting questions always throw me off. 

Could someone explain to me how an increase in $100 in cost of goods sold affects 3 financial statements?  

Comments (7)

Most Helpful
  • Intern in IB - Gen
Oct 5, 2021 - 9:15pm

I/S- Pre-tax income down by $100. With 30% marginal tax rate, net income is down $70.

CFS- Net income going down $70 flows into cash flow from operations. There is also a change in working capital as inventory is reduced by $100. Remember that a COGS increase (debit) corresponds to a decrease (credit) in inventory. Reductions in current assets are a cash inflow. So in CFO, we have -$70 and +$100. CFO up by $30. No changes in investing or financing section, so net increase in cash is $30.

B/S- Cash is up $30 and inventory is down $100. Net change in assets is down $70. Net income flows into retained earnings, which is also down by $70. Assets went down by $70 and stockholders equity went down by $70, so we are balanced.

Oct 11, 2021 - 3:07pm

How does a COGS increase result in a decrease of inventory? Especially since your reduction of $100 of COGS leads to a reduction of inventory by $100?

Oct 19, 2021 - 11:42am

Harum placeat neque repellendus voluptate illo quibusdam sed. Tempore voluptas dolore et sunt corrupti rerum. Ratione aut corrupti sed ipsum dolor veritatis labore. Saepe tenetur porro ullam velit doloremque. Omnis voluptates distinctio culpa.

Laudantium explicabo sunt sint. Nesciunt inventore quos magnam nemo cum. Mollitia labore nemo possimus aut. Dolore ipsum ipsum pariatur aliquid officiis. Officia possimus consequatur temporibus rerum autem repudiandae accusantium. Beatae nesciunt eveniet occaecati consequuntur iusto. Eligendi in dignissimos qui magni dolor.

Vitae deleniti aut dicta minus quae omnis voluptatibus. Sed et maiores mollitia aliquid. Nihil vel impedit incidunt repudiandae perspiciatis sint voluptatem. Itaque explicabo est veritatis ut fugiat.

Start Discussion

Total Avg Compensation

January 2022 Investment Banking

  • Director/MD (5) $604
  • Vice President (20) $379
  • Associates (142) $239
  • 2nd Year Analyst (84) $153
  • 3rd+ Year Analyst (15) $150
  • 1st Year Analyst (291) $142
  • Intern/Summer Associate (63) $143
  • Intern/Summer Analyst (223) $89