Under the direct method of preparing the statement of cash flows,which statement is CORRECT regarding the method of computing cash payments to suppliers for inventory?
A)Cost of goods sold less a decrease in inventory plus an increase in accounts payable.
B)Cost of goods sold plus an increase in inventory less an increase in accounts payable.
C)Cost of goods sold plus an increase in inventory plus an increase in accounts payable.
D)Cost of goods sold plus a decrease in inventory plus an increase in accounts payable.

Question

Quizplus · Accepted Answer

To compute cash payments to suppliers for inventory using the direct method, you start with the cost of goods sold (COGS), add any increase in inventory (since an increase in inventory means you've bought more than you sold), and subtract any increase in accounts payable (since an increase in accounts payable means you've bought on credit and haven't paid cash yet). This approach adjusts COGS for changes in inventory and accounts payable to reflect actual cash payments.

Under the Direct Method of Preparing the Statement of Cash