A company uses the direct method to prepare the statement of cash flows.It presents the following data on its financial statements:

*Relates solely to the acquisition of inventory
Which of the following is correct about salaries payable in the operating activities category of the cash flow statement?
A)The increase of $4,000 will be subtracted from salary expense to determine payments to employees.
B)The increase of $4,000 will be subtracted from net income.
C)The increase of $4,000 will be added to salary expense to determine payments to employees.
D)The increase of $4,000 will be added to net income.

Question

A company uses the direct method to prepare the statement of cash flows.It presents the following data on its financial statements:

*Relates solely to the acquisition of inventory
Which of the following is correct about salaries payable in the operating activities category of the cash flow statement?
A)The increase of $4,000 will be subtracted from salary expense to determine payments to employees. 
B)The increase of $4,000 will be subtracted from net income. 
C)The increase of $4,000 will be added to salary expense to determine payments to employees. 
D)The increase of $4,000 will be added to net income.

Quizplus · Accepted Answer

Salaries payable is a liability account that represents the amount of salaries owed to employees but not yet paid. In the operating activities section of the statement of cash flows prepared using the direct method, the increase in salaries payable is subtracted from salary expense to determine cash payments to employees. Therefore, choice A is the correct answer. Choices B, C, and D are incorrect.

A Company Uses the Direct Method to Prepare the Statement