Finance Analyst Question:

Accounts Receivable Impact Since accounts receivable and inventory are balance sheet items, they do not directly affect your company’s income statement. Fluctuations or changes in these two current assets always appear on the balance sheet and on the cash flow statement. Revenues on the income statement show up as A/Rs or cash on the balance sheet and cash flow statement. The payment of A/Rs by customers converts A/Rs to cash, which in no way impacts the income statement. Inventory Impact As your company sells products, it reflects its inventory costs in the cost of goods sold line item on the income statement. Therefore, any fluctuations or modifications to the cost basis of that inventory will impact the income statement via the cost of goods sold. However, as with A/Rs, the cost of goods sold on the income statement already reflects inventory valuations on the balance sheet, so inventory-level fluctuations do not affect the income statement.