Qtopia Company uses the direct method to prepare its cash flow statement. It has reported Cost of sales of $70 000 on its income statement for the year 2014. If the balance in accounts payable (for inventory suppliers only)has gone down by $5 000 during the year, then $5 000 will have to be added to $70 000 as part of the process to calculate payments to suppliers for inventory purchases.

Question

Quizplus · Accepted Answer

The decrease in accounts payable means that Qtopia has paid more to its suppliers than it has purchased on credit. Therefore, the $5,000 decrease in accounts payable must be added to the cost of sales to calculate the payments to suppliers for inventory purchases.

Qtopia Company Uses the Direct Method to Prepare Its Cash