Say you have $100 in cash. Assets: $100 cash Liabilities + equity: $100 Stockholders Equity You purchase $100 worth of inventory. Assets: -100 cash +100 Inv Liabilities + equity: $100 SE (no change) I understand how CFO will state a -100 cash outflow on CFO. But what will the income statement show for this time period? I dont think there is any(it will just be all zeros). at first i thought you would have a -100 on COGS, but that would mean you have a -100 NI which should reflect a -100 on SE but that would change how the BS balances(L+E would be zero, assets would be 100 inventory). Can someone confirm the Income Statement will have no activity for this transaction? and why?
the cogs would be recorded when you make a sale
that would mean NI is -100. Which means it will subtract from SE, making the Balance Sheet equation out of balance. am i missing something here?
Purchases$100-Closing inv$100=COGS$0 is shown in income statement
Ok, so this transaction will not show up on the Income Statement correct?
iregula Wrote: ------------------------------------------------------- > Ok, so this transaction will not show up on the > Income Statement correct? Not until you sell the inventory.
The purchase of inventory [$100] and subsequent sale at [$125] is as follows: (1) Purchase Balance Sheet Dr. Inventory $100 Cr. Cash $100 Statement of Cash Flows Cash Flow from Operations: -$100 (2) Journal Entries at Sale Dr. Accounts Receivable $125 Cr. Sales $125 Dr. Cash $125 Cr. Accounts Receivable $125 Dr. Cost of Goods Sold $100 Cr. Inventory $100 Cash Flow from Opeartions: $125 (3) Period End Closing Entries Dr. Sales: $125 Cr. Cost of Goods Sold: $100 Cr. Retained Earnings: $25 Note that the net Cash Flow from Operations and Income agree, at $25.