In a company that uses the direct method to prepare the statement of cash flows, the amount of cash it pays to employees is computed as
A)salary expense plus the ending balance salaries payable.
B)salary expense plus the decrease in salaries payable.
C)salary expense plus the increase in salaries payable.
D)salary expense plus the beginning balance in salaries payable.

Question

Quizplus · Accepted Answer

The direct method calculates the amount of cash paid to employees as salary expense plus the decrease in salaries payable. This is because the decrease in salaries payable means that the company has paid out more cash to employees than it has recorded as salary expense, and this difference needs to be added to the recorded salary expense in order to arrive at the actual cash paid to employees.

In a Company That Uses the Direct Method to Prepare