Under the direct method of preparing the statement of cash flows, which statement is correct regarding the method of computing cash payments to suppliers?
A) Cost of goods sold less a decrease in inventory plus an increase in accounts payable
B) Cost of goods sold plus an increase in inventory less a decrease in accounts payable
C) Cost of goods sold plus an increase in inventory plus an increase in accounts payable
D) Cost of goods sold plus a decrease in inventory plus an increase in accounts payable

Question

Quizplus · Accepted Answer

Under the direct method, cash payments to suppliers are calculated by adjusting the cost of goods sold for changes in inventory and accounts payable. An increase in inventory indicates more purchases, and a decrease in accounts payable indicates more cash paid, so both are added to COGS.

Under the Direct Method of Preparing the Statement of Cash