Qtopia Company uses the direct method to prepare its statement of cash flows. It has reported Operating Expenses of $63,000 on its income statement for the year 2014. If the balance in Accrued Liabilities has gone up by $6,000 during the year, then $6,000 will have to be added to $63,000 as part of the process to calculate payments to suppliers for operating expenses.

Question

Quizplus · Accepted Answer

The increase in Accrued Liabilities means that expenses have been recognized but not yet paid, so they should be subtracted from Operating Expenses as part of the process to calculate payments to suppliers for operating expenses, not added. Therefore, $63,000 - $6,000 should be used to calculate payments to suppliers for operating expenses.

Qtopia Company Uses the Direct Method to Prepare Its Statement