Balance sheet items do not necessarily affect your profit and tax liabilities.
A. Inventory is your cost of goods sold. It is like a type of expenses; however, when it is on the book, it is your assets. When you use it, reducing the inventory actually is increasing your expenses, reduces your profit and thus, reduces your tax liabilities.
However, when the inventory is increased (went up), how it is affect your income and expenses depends on your 1) accounting method, accrual or cash basis, 2) type of industry you are in, and 3) the reason the inventory went up, most of the times, this could have no effect on your profit until they are used and be out of the inventory. When it is a line item on the balance sheet, increasing the inventory has no effect on the income and expenses and no effect on tax.
B. AP increased. When you have accounts payable, the expense has been registered. The profit reduces.
C. AR decreased. It is a type of assets account. When you register your income, your AR increases. That is when the income is increased. However, when it is reduced, say, by we receiving cash paid off by our customers, it has no effect on income or expenses.
Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP