Using the indirect method of reporting cash flows from operating activities, an increase in the inventory account will be subtracted from net income to arrive at the net cash flow provided by operating activities.
This is because an increase in the inventory account generates a decrease in cash flow, since an increase in the inventory account means that inventory purchases were made.
Corresponds to a way of representing cash flow statements by adding or subtracting changes in assets and liabilities from net income for the period, thus increasing the understanding of net cash flow.
Therefore, the indirect method initially demonstrates the cash flow through net profit or loss according to the variations in the period related to expenses and income that impact the organizational activities and its operations.
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