During the year the balance in the accounts payable account decreased by $8,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:
A) deduct the $8,000 from the sales revenue reported on the income statement.
B) add the $8,000 to the sales revenue reported on the income statement.
C) deduct the $8,000 from the cost of goods sold reported on the income statement.
D) add the $8,000 to the cost of goods sold reported on the income statement.

Question

Quizplus · Accepted Answer

When the balance in accounts payable decreases, it means that the company has paid more to its suppliers than it has purchased on credit. This results in a decrease in expenses and an increase in cash. To adjust net income to a cash basis, we need to add the decrease in accounts payable to the cost of goods sold reported on the income statement.

During the Year the Balance in the Accounts Payable Account