Qtopia Company uses the direct method to prepare its statement of cash flows. It has reported operating expenses of $21,000 on its income statement for the year 2012. If the balance in accrued liabilities has gone up by $1,000 during the year, then $1,000 will have to be added to $21,000 as part of the process to calculate payments to suppliers for operating expenses.

Question

Quizplus · Accepted Answer

In the direct method, an increase in accrued liabilities indicates that not all expenses were paid in cash, so the $1,000 increase should be subtracted from the $21,000 to calculate cash payments for operating expenses.

Qtopia Company Uses the Direct Method to Prepare Its Statement