Which financial statement shows the changes in inventory levels over time?

The Cash Flow Statement is designed to provide insights into the cash inflows and outflows over a specific period, allowing stakeholders to assess how well a company manages its cash position. Within the context of cash flows, the changes in inventory levels are reflected in the operating activities section. When inventory levels increase, this indicates that cash has been used to purchase more inventory, which would show as a cash outflow. Conversely, a decrease in inventory suggests that inventory has been sold, leading to an inflow of cash.

This makes the Cash Flow Statement the right choice for showing how inventory levels have changed during the reporting period, as it directly reflects the cash impact of inventory management.

The other financial statements do not display changes in inventory over time in the same way. The Income Statement highlights revenues and expenses over a period, but it summarizes performance rather than changes in assets like inventory. The Balance Sheet shows a snapshot of assets, including inventory, at a specific point in time, providing no insights into how inventory levels have changed over a period. The Statement of Changes in Equity focuses on changes in owner’s equity and does not address inventory changes specifically.