The movement of both accounts also present on the cash flow statement, so they will impact both sides. When we buy or sell inventory on credit, it will impact the Accounts Payable and Accounts Receivable balance. We may sell the inventory on credit, so cash not yet receive too. What if we purchase inventory on credit, so there is no cash flow. Inventory decrease => Cash Inflow (positive).Inventory increase => Cash Outflow (negative).On the other hand, the decrease of inventory will make cash inflow as we have sold them. So when the inventory increase, it means that company has to spend cash (cash outflow) to purchase them. Similar to other current assets, company needs to spend cash to acquire the inventory. The movement of inventory will cause cash inflow and outflow of the company. Inventory is the current asset, so it impacts on operating activity of the cash flow statement. Impact of Inventory on Cash Flow Statement The inventory that is sold within the accounting period will be classified as вЂњCost of Goods SoldвЂќ in the income statement. Inventory is the current asset that presents on the companyвЂ™s balance sheet. For the trading company, inventory is the goods they purchase to resell. For manufacturing, there are three types of inventories which include raw material, work in progress, and finished goods. Inventory is the goods company purchase for the purpose of reselling, it includes the raw material produce goods available for sale.

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