Accounting Questions - Inventory and Cash Flow Statement

Hello, I'm a techie, not an accounting guy. However, I'm studying accounting and finance on the side for investing purposes and growth. I'm currently readi ng a very basic book dealing with financial statements. My question is abo ut inventory. The book states if inventory increases then cash has decreas ed and if inventory decreases cash has increased.
However, wouldn't this depend on whether you actually paid cash or received cash for the inventory?
Here's how I see it. Maybe you purchased the inventory on credit? Maybe y ou sold the inventory on credit increasing account receivable? I both case s, no cash has actually went into or out of the business.
Thanks in advance for any assistance. John
Reply to
investaguy
Correct. The cash account is not touched until the money actually changes hands. In the meantime, you would journalize the sales, inventory, cost of goods sold, a/p, and a/r accounts depending on the transactions. Imagine what would happen if a bookkeeper for a small company recorded all sales immediately into the cash (various bank sub-accounts) account and tried to cut checks to pay bills based on those numbers. I ran into this problem with a restaurant that immediately recognized credit card sales as cash and didn't understand why their checks kept bouncing.
In a related matter, if you withdrew $100 from an ATM, would you consider it an expense or just a transfer of assets until you used the cash?
Reply to
Rocinante
and finance on the side for investing purposes and growth. I'm currently r eading a very basic book dealing with financial statements. My question is about inventory. The book states if inventory increases then cash has dec reased and if inventory decreases cash has increased.
ived cash for the inventory?
be you sold the inventory on credit increasing account receivable? I both cases, no cash has actually went into or out of the business.
Thank you.
On the related matter, I'd consider it a transfer of cash until I used it.
Is that correct thinking? John
Reply to
John
Yes, of course. You could have it in your pocket for weeks before you use it. Personally, I don't keep track of where it specifically goes as I spend it unless I make a major cash purchase. I have a Misc. Cash account in Quicken, debit it when I withdraw cash, and count what is left in my wallet each week and credit the difference.
Reply to
Rocinante

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