Does a change in a current asset affect the income statement? For example, if inventory goes up 100, then this is a use of cash and cash flow goes down 100. Cash goes down 100 on the balance sheet and Inventory goes up 100. Is this right?
I hate to post this in the forum but I've looked through my acccounting book and googled it and I can't figure it out.
Thanks
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No, a decrease in inventory does not change your IS. Your CA overall do not change, your inventory goes up by 100 and your cash goes down by 100, no change to you IS at all.
HFFBALLfan123 is correct. IS is unchanged.
OP - if you have to ask this question you need to take a step back and make a concerted effort to understand how the statements relate to one another.
fyi i was told the wrong answer by a FT analyst at a prestigious BB so I was just clarifying. Thats what forums are for.
Surprisingly, there are analysts at "prestigious" BBs that do not really understand this stuff. They don't get to work on good projects or with good senior people, they get crappy bonuses, and they are relegated to creating charts and pasting them into powerpoint all day and all night.
If you are not in banking yet and are just learning accounting, then I understand if you don't know this stuff yet, but please understand that it is absolutely essential to know if you want to be a respected analyst and do respectable work.
I strongly second this statement. This is accounting stuff that you HAVE TO KNOW to model. You need to understand how the three statements (IS, BS, CF) interrelate. Practice building three statement models in excel.
Current Assets does not affect the income statement, but if you understand how everything works, inventory is probably going down because the inventory was sold which means COGS will go up on the income statement. If you are just asking if when Current assets change, are there changes to the I/S? Your answer is no.
only if the inventory is sold during the period to arrive at the lower ending inventory number, then the income statement would be affected. cost of goods sold (merchandising firm) is determined by Beginning inventory+purchases-ending inventory. therefore, a decrease in your ending inventory increases your COGS, which is an expense on the income statement, resulting in a lower net income.
yes, it is impacted.
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