3-Statement Change: Buy $100 of Inventory for Cash

Walk me through what happens across the income statement, cash flow statement, and balance sheet if a company buys $100 of inventory for cash, with everything else held constant.

1. Task Overview

Task: trace the $100 inventory purchase through all three financial statements and determine the net impact on net income, total assets, and cash flow from operations.

Step 1: Given Data — The Transaction

The company enters into a single transaction; all other accounts are held constant.

Step 2: Income Statement Impact

Think about what the matching principle says about when the cost of inventory is allowed to hit the income statement.

Using this principle, determine the impact on Revenue, COGS, and Net Income at the moment of purchase.

Step 3: Balance Sheet Impact

Cash and Inventory are both assets — think about what happens to each one individually in this transaction, and to the total.

Using this formula, compute the new Cash and Inventory balances and confirm the net change in Total Assets.

Step 4: Cash Flow Statement Impact

Think about which section of the cash flow statement captures a build in inventory.

Assume:

• The purchase is settled entirely in cash (no trade credit)
• No sales tax or additional fees on the purchase
• No inventory write-down or obsolescence in the period

Using these inputs, compute the cash flow from operations and the ending cash balance.