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[17] In a statement of cash flows (indirect method) of a business, an increase in inventories should be presented as a(n) A. Outflow of cash. B. Inflow and outflow of cash. C. Addition to income from continuing operations. D. Deduction from income from continuing operations.

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Answer: Outflow of cash

Explanation: Outflow of cash refers to those transactions that results in expenditure of company and outgoing of cash from the organisation. Inventory refers to those short term assets, that are purchased by the entity with the intent of reselling to make profit.

Hence, if the inventory has been increased, then it is an expenditure to the entity which results in outflow of cash.

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