Using the direct method to prepare the statement of cash flows, cash payments to supplies is computed as
A)interest expense minus the decrease in accounts payable.
B)interest expense minus the decrease in merchandise inventory.
C)purchases minus the increase in accounts payable.
D)interest expense minus the increase in merchandise inventory.

Question

Quizplus · Accepted Answer

The direct method for preparing the statement of cash flows requires adjustments to the income statement items to reflect cash transactions. To calculate cash payments to supplies, purchases (which reflects credit purchases and cash purchases) is used and the increase in accounts payable is subtracted (as an increase in accounts payable means payment was not made in cash). Therefore, the formula for cash payments to supplies is: purchases - increase in accounts payable.

Using the Direct Method to Prepare the Statement of Cash