Accounting Questions - Inventory and Cash Flow Statement

Discussion in 'Accounting' started by investaguy, Nov 15, 2013.

  1. investaguy

    investaguy Guest

    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 reading a very basic book dealing with financial statements. My question is about inventory. The book states if inventory increases then cash has decreased and if inventory decreases cash has increased.

    However, wouldn't this depend on whether you actually paid cash or receivedcash for the inventory?

    Here's how I see it. Maybe you purchased the inventory on credit? Maybe you sold the inventory on credit increasing account receivable? I both cases, no cash has actually went into or out of the business.

    Thanks in advance for any assistance.
    John
     
    investaguy, Nov 15, 2013
    #1
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  2. investaguy

    Rocinante Guest

    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?

    --
    If you can keep your head when all about you are losing theirs, it's just
    possible you haven't grasped the situation. -- Jean Kerr


    11/16/2013 10:19:04 AM
     
    Rocinante, Nov 16, 2013
    #2
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  3. investaguy

    John Guest

    Thank you.

    On the related matter, I'd consider it a transfer of cash until I used it.

    Is that correct thinking?
    John
     
    John, Nov 20, 2013
    #3
  4. investaguy

    Rocinante Guest

    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.

    --
    "Attention to Detail: noticing that the clock on one of your systems is
    using Aleutian time, and changing all the others to match."
    -- Aeleen Frisch, on sysadmin virtues
    "Essential System Administration"


    11/22/2013 2:49:26 PM
     
    Rocinante, Nov 22, 2013
    #4
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