Question

$2,000 of inventory on account. This inventory was sold for $3,000 cash. The amount of gross margin reported on the income statement and the amount of net cash inflow from operating activities reported on the statement of cash flows would be

Answer 1

Answer: $1,000 Gross Margin

$3,000 Net Cash

Explanation:

Gross margin is generally calculated by subtracting the cost of goods sold from the Selling Price.

In this scenario that would be,

= $3,000 - $2,000

= $1,000 is the Gross Margin.

Now, for net Cash inflows from the Operating Activities we need to note that the inventory was bought ON ACCOUNT so no cash actually left the company but then they sold the inventory for $3,000.

$3,000 therefore came into the company as CASH so the $3,000 is considered to be Net Cash Inflow from Operating Activities.