Rubin Installations Company uses the direct method to prepare its statement of cash flows.Rubin has reported cost of goods sold of $95,000 on its income statement for 2017.If the balance in the Merchandise Inventory account decreased by $6,000 during the year,then $6,000 needs to be added to $95,000 to calculate payments to suppliers for inventory purchases.

Question

Quizplus · Accepted Answer

The direct method starts with cash inflows and outflows, and thus requires adjustments to certain non-cash items, including changes in accounts receivable, accounts payable, and inventory. To calculate payments to suppliers for inventory purchases, the change in accounts payable rather than the change in inventory is needed. Therefore, the $6,000 decrease in Merchandise Inventory is not directly relevant to this calculation.

Rubin Installations Company Uses the Direct Method to Prepare Its