Author Topic: How can inventory decrease go through the cash flow statmnt? Isn't that on COGS?  (Read 1109 times)

manuelbean

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I'm drawing a blank here.

How can the "Changes in Inventory" be positive on the cash flow statement? If the inventory decreases on the Balance Sheet, doesn't that mean that it went through the COGS, thus not needing to go through the CF Statement?

Thanks


wabuffo

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How can the "Changes in Inventory" be positive on the cash flow statement? If the inventory decreases on the Balance Sheet, doesn't that mean that it went through the COGS, thus not needing to go through the CF Statement?

Its very likely that I am not understanding your question.

But when you say "changes in inventory" is positive on the cash flow statement - do you mean positive as in a source (rather than use) of cash?  If so, then this is perfectly consistent with a decrease in inventory on the balance sheet. 

My answer seems so pat - that I'm guessing that I've totally misunderstood your question.  If so, can you please clarify your question?  Perhaps you could even refer to the specific set of public company financials to which you are referring?

wabuffo

manuelbean

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Thank you wabuffo, but I just realized how stupid my thinking was.

Nothing to see here.  ::) ::) ::)

brisbane

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Thank you wabuffo, but I just realized how stupid my thinking was.

Nothing to see here.  ::) ::) ::)

You say you understand but the poster above didn't really explain it.

Inventory went down, meaning it was sold and hence generated cash. The carrying value of the inventory would be expensed through COGS. The *total* cash flow generated from the sale is really the gross margin (from your income statement)  plus the carrying value decrease (change in inventories).

DooDiligence

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Thank you wabuffo, but I just realized how stupid my thinking was.

Nothing to see here.  ::) ::) ::)

You say you understand but the poster above didn't really explain it.

Inventory went down, meaning it was sold and hence generated cash. The carrying value of the inventory would be expensed through COGS. The *total* cash flow generated from the sale is really the gross margin (from your income statement)  plus the carrying value decrease (change in inventories).

I thought the explanation was fine.

Now do inventory write downs.
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brisbane

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Thank you wabuffo, but I just realized how stupid my thinking was.

Nothing to see here.  ::) ::) ::)

You say you understand but the poster above didn't really explain it.

Inventory went down, meaning it was sold and hence generated cash. The carrying value of the inventory would be expensed through COGS. The *total* cash flow generated from the sale is really the gross margin (from your income statement)  plus the carrying value decrease (change in inventories).

I thought the explanation was fine.

Now do inventory write downs.

I really didn't think "that is consistent with a decrease of inventory on the balance sheet" is any kind of explanation, and even if OP got it, that's not really helpful to someone else who may have the same question.

BS inventory value decreases, CF impact from W/C change is nil, write-down gets expensed on IS, you get a CF addback for the non-cash writedown.
« Last Edit: October 15, 2020, 12:52:45 PM by brisbane »

John Hjorth

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The whole thing about inventories - [ and the related reporting to it] -is just soo a PITA [for everyone involved, management, internal accountants, auditors  & investors etc.]

In reality, nobody really knows [great opportunity for so called "helpers" to charge hours of work to get to the "true" [accounting] value].
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Spekulatius

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Thank you wabuffo, but I just realized how stupid my thinking was.

Nothing to see here.  ::) ::) ::)

You say you understand but the poster above didn't really explain it.

Inventory went down, meaning it was sold and hence generated cash. The carrying value of the inventory would be expensed through COGS. The *total* cash flow generated from the sale is really the gross margin (from your income statement)  plus the carrying value decrease (change in inventories).

I thought the explanation was fine.

Now do inventory write downs.

An inventory write down is a non event for the cash flow statement.
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dwy000

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Thank you wabuffo, but I just realized how stupid my thinking was.

Nothing to see here.  ::) ::) ::)

You say you understand but the poster above didn't really explain it.

Inventory went down, meaning it was sold and hence generated cash. The carrying value of the inventory would be expensed through COGS. The *total* cash flow generated from the sale is really the gross margin (from your income statement)  plus the carrying value decrease (change in inventories).

I thought the explanation was fine.

Now do inventory write downs.

An inventory write down is a non event for the cash flow statement.

If a writedown was taken as an expense it would be reflected in net income and thwn added back in the cash flow statement as a non-cash expense.