Operating expenses other than depreciation expense for the year were $332,000. Prepaid expenses increased by $5,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:
A) $332,000.
B) $337,000.
C) $327,000.
D) $5,000.

Question

Quizplus · Accepted Answer

When using the direct method for the cash flow statement, adjustments are made for changes in working capital accounts to calculate cash payments or receipts. The increase in prepaid expenses (a current asset) by $5,000 means that the company paid $5,000 more in cash for these expenses than was expensed on the income statement. Therefore, the cash payments for operating expenses are the reported expenses of $332,000 plus the $5,000 increase in prepaid expenses, totaling $337,000.

Operating Expenses Other Than Depreciation Expense for the Year Were