A company buys $10 of inventory with cash. Walk me through the three statements.

At the time of purchase, the income statement doesn't move. Buying inventory isn't an expense. It only becomes cost of goods sold once the goods are sold, so revenue, pre-tax income and net income all stay where they were. On the cash flow statement, net income is unchanged. Inventory is up by $10, and an increase in a working capital asset uses cash, so cash flow from operations is down by $10. It sits in operations, not investing, because inventory is part of working capital. Investing and financing don't change, so cash is down by $10. On the balance sheet, cash is down by $10 and inventory is up by $10. Total assets are flat, and liabilities and equity haven't changed, so it balances. The income statement would only change later, when the company sells the goods.

At the time of purchase, the income statement doesn't move. Buying inventory isn't an expense. It only becomes cost of goods sold once the goods are sold, so revenue, pre-tax income and net income all stay where they were. I'd use a 25% tax rate, but with no change in profit there's no tax effect yet. On the cash flow statement, net income is unchanged. Inventory is up by $10, and an increase in a working capital asset uses cash, so cash flow from operations is down by $10. It sits in operations, not investing, because inventory is part of working capital. Investing and financing don't change, so cash is down by $10. On the balance sheet, cash is down by $10 and inventory is up by $10. Total assets are flat, and liabilities and equity haven't changed, so it balances. The company swapped one current asset for another. It's no richer or poorer, only less liquid. You'd probably ask next what happens when it sells them, so say it sells the lot for $20 in cash. Now the income statement does move. Revenue is up $20 and cost of goods sold is $10, so pre-tax income is up $10. Tax at 25% is $2.50, and net income is up $7.50. On the cash flow statement I start with that $7.50 and add back the $10 fall in inventory, so cash flow from operations is up $17.50. On the balance sheet, cash is up $17.50 and inventory is down $10. Assets are up $7.50, which matches the $7.50 added to retained earnings. Across the purchase and the sale, cash is up $7.50. That's $20 collected, less $10 paid for the goods, less $2.50 of tax.