Target Corp. is a major U.S. retailer that historically has carried inventory balances in excess of 15% of its total assets, and in a typical year the cost of its sold inventory approximates 70% of total sales. In the operating section of its 2008 statement of cash flows, target added the $77 million decrease in its inventory balance and subtracted the $389 million increase in its accounts payable balance to net earnings in the calculation of cash flow provided by operations.
REQUIRED:
a. Why were these adjustments reported on the statement of cash flows?
b. Assuming that most of the accounts payable are owed to its inventory suppliers, what does the difference between these two amounts indicate about how Target’s operating cash flows were managed during 2008?