Practice prompt · Q:transactions-to-statements/operating-balance-changes-001

Derive three operating-balance adjustments

Formative check on claims, account rollforwards, signed operating balance adjustments, and the limits of net change evidence.

Updated Aug 6, 2026 Review due Nov 6, 2026

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Northstar's Accounts Receivable increases from $8,000 to $10,000, Inventory from $15,000 to $19,000, and ordinary Accounts Payable from $9,000 to $10,000. The fact pattern excludes acquisitions, write-offs, reclassifications, currency effects, and other noncash movements. Which treatment of the three changes is correct in an indirect operating reconciliation?

Choose the best answer. A Add all three increases: +$2,000 Accounts Receivable, +$4,000 Inventory, and +$1,000 Accounts Payable, for +$7,000. B Subtract the $2,000 receivable increase and $4,000 inventory increase, add the $1,000 payable increase, and report a net $(5,000) adjustment while flagging any noncash or scope changes before relying on it. C Subtract all increases because larger operating balances always consume Cash, for a $(7,000) adjustment. D Use only the $2,000 receivable increase because Inventory and Accounts Payable never belong in operating cash-flow analysis.

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Answer: B

Accounts Receivable and Inventory are operating assets, so their $2,000 and $4,000 increases are negative adjustments under the stipulated rollforwards. Accounts Payable is an operating liability, so its $1,000 increase is a positive adjustment. The combined effect is negative $5,000. Choice B also preserves the required control: acquisitions, write-offs, currency effects, and reclassifications can make raw net changes incomplete.