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

A purchase of inventory is not an expense — it is the exchange of one asset (cash) for another (inventory).

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

Step 3: Balance Sheet Impact

Since cash is paid and inventory is received, two asset accounts move in opposite directions by the same amount.

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

Step 4: Cash Flow Statement Impact

An increase in inventory is a build in working capital and is treated as a use of cash within the operating section.

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.