Under the direct method of determining the net cash provided by operating activities on the statement of cash flows, an increase in accounts payable would be deducted from cost of goods sold to convert cost of goods sold to a cash basis.

Question

Quizplus · Accepted Answer

The direct method of determining the net cash provided by operating activities on the statement of cash flows involves converting each individual item on the income statement to a cash basis. For cost of goods sold, an increase in accounts payable (which means the company has not yet paid for goods purchased) would be deducted from the cost of goods sold to reflect the actual cash payments made during the period.

Under the Direct Method of Determining the Net Cash Provided