The workout tells us that materials are bought with cash in year 1. They are sold on credit and delivered to the customer in year 2 Cash from the customer is received in year 3 The question's asking us to answer the questions below by placing an "X" in the column of the appropriate year So this is a matching principle question In which period will revenue appear on the income statement? Well we were told that they were sold on credit and delivered, delivered is the key word. Delivered to the customer in year 2, you're allowed to recognize revenue or sales in the period in which you delivered products So year 2 is when we can recognize the revenue In which period will "COGS" appear on the income statement? Well matching principle says we need to match the COGS or cost of goods sold to the revenue Revenue is year 2 therefore the COGS must be year 2 as well Next one, in which period will inventory be added to the balance sheet? Well the question told us that materials are bought with cash in year 1, so your inventory actually went up in year 1 The next question goes on to say, in which period will inventory be deducted from the balance sheet? Well you sold it in year 2, it became COGS in year 2 That means the inventory must have gone out in year 2 So inventory down, COGS up Next up, in which period will there be a cash outflow on the cash flow statement? Well again, the question told us that materials were bought with cash in year 1 So that's when our cash outflow happened, year 1 And lastly in which period will there be a cash inflow in the cash flow statements? The last part of the question says cash from the customer is received in year 3 So a really interesting scenario here, you actually bought some inventory in year 1 you paid for it in year 1, so cash outflow in year 1 But you only sold it in year 2 and only received the cash from it in year 3 So just one piece of inventory purchased, sold and then cash received is ended up being spread across three years of financial statements