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What does the inventory line on the cash flow statement mean?
To calculate the inventory adjustment amount, subtract the inventory entry on the balance sheet for the current period from the inventory entry on the balance sheet for the previous period. Here is why: Let's say, for example, that at the end of the previous period, you had $5,000 in inventory. Currently, you have $20,000 in inventory. You need to subtract $15,000 from the cash from operating activities on the cash flow statement because you converted $15,000 of cash into inventory. On the other hand, if at the end of the previous period, you had $20,000 in inventory, and currently you have only $5,000 in inventory, you would add $15,000 to the cash from operating activities to reflect the fact that you recently converted $15,000 of inventory into cash. Notice that none of this is reflected on the income statement.
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