Accounting & the three statements / ORIGINAL SCENARIO

Inventory on supplier credit

A retailer buys 36 of inventory entirely on supplier credit. Before any sale or payment, explain the cash-flow impact.

Amounts $m, no tax or other changes. Accounts payable is operating.

Try it before the answer →

Worked answer

inventory: 36 = 36
accounts Payable: 36 = 36
cfo: 0 = 0

Inventory increases assets; payable increases liabilities.

CFO has equal negative inventory and positive payable adjustments.

Technical follow-ups

What happens to CFO when the payable is subsequently paid without selling inventory?

Could stretching supplier terms temporarily improve CFO without improving profitability? What sustainability risks would you check?

Follow-up answer guide

Paying the supplier reduces cash and accounts payable by 36 and creates a 36 operating cash outflow without changing inventory or net income. Retry 52.

A fresh retry

A retailer buys 52 of inventory entirely on supplier credit. Before any sale or payment, what are the changes in inventory, accounts payable and CFO?

Amounts $m, no tax or other changes. Accounts payable is operating.

Inspect replacement inputs

purchase: 52

Check the retry bridge

inventory: 52 = 52
accounts Payable: 52 = 52
cfo: 0 = 0

Original fictional example. Not a report of a specific firm’s interview. Explanations need qualified human review.