To determine cash payments for merchandise for the statement of cash flows using the direct method, a decrease in accounts payable is added to the cost of goods sold. Assume all accounts payable are owed to merchandise suppliers.

Question

Quizplus · Accepted Answer

A decrease in accounts payable indicates that cash payments were made to reduce the liability, so it is added to the cost of goods sold to reflect the actual cash paid for merchandise.

To Determine Cash Payments for Merchandise for the Statement of Cash