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 $10,000 will be subtracted from salary expense to determine payments to employees.
B)The increase of $10,000 will be subtracted from net income.
C)The increase of $10,000 will be added to salary expense to determine payments to employees.
D)The increase of $10,000 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 $10,000 will be subtracted from salary expense to determine payments to employees. 
B)The increase of $10,000 will be subtracted from net income. 
C)The increase of $10,000 will be added to salary expense to determine payments to employees. 
D)The increase of $10,000 will be added to net income.

Quizplus · Accepted Answer

Salaries payable is a liability account and is included in the operating activities category of the cash flow statement. An increase in salaries payable means that the company owes more money to its employees. When preparing the cash flow statement using the direct method, the increase in salaries payable will be subtracted from salary expense to determine the actual cash payments made to employees during the period. Therefore, choice A is correct.

A Company Uses the Direct Method to Prepare the Statement