am i correct to include increase inventory to CFO direct method calculation increase, question, include, understand, correct

hanvinh

Hi,

i have a question from qbank which i do not understand:

Financial information for Jefferson Corp. for the year ended December 31st, was as follows:

Sales: $3,000,000
Purchases: $1,800,000
Inventory at Beginning: $500,000
Inventory at Ending: $800,000
Accounts Receivable at Beginning: $300,000
Accounts Receivable at Ending: $200,000
Other Operating Expenses Paid: $400,000


Based upon this data and using the direct method, what was Jefferson Corp.’s cash flow from operations (CFO) for the year ended December 31st?

A) $1,200,000.

B) $800,000.

C) $900,000.

This is the Answer from Qbank which is C
CFO = sales $3,000,000 – purchases $1,800,000 – change in accounts receivable ($200,000 – $300,000) – other cash operating expenses $400,000 = $900,000.


My calculation is:
$3,000,000 (Sales)
$1,800,000 (Purchases )
$800,000 - $500,000= 300,000 (Increase in inventory which is use of cash)
$200,000 – $300,000 = -100,000 (Decrease in account receivables which is source of cash)

therfore $3,000,000 - $1,800,000 - 300,000 (use) + 100,000 (source) = $1,000,000

My question is why the increase in inventory is not include in the calculation? I thought an increase in assets is consider as use of cash.

Thanks