Under the direct method, cash paid to suppliers can be computed as cost of goods sold for the period
A) plus an increase in inventory and minus an increase in accounts payable.
B) plus a decrease in inventory and minus an increase in accounts payable.
C) minus an increase in inventory and plus an increase in accounts payable.
D) minus a decrease in inventory and plus an increase in accounts payable.

Question

Quizplus · Accepted Answer

Under the direct method, cash paid to suppliers is calculated by adjusting the cost of goods sold for changes in inventory and accounts payable. An increase in inventory means more cash was used to purchase inventory, so it is added. An increase in accounts payable means less cash was paid out, so it is subtracted.

Under the Direct Method, Cash Paid to Suppliers Can Be