Qtopia Company uses the direct method to prepare its cash flow statement. It has reported operating expenses of $21 000 on its income statement for the year 2014. If the balance in accrued liabilities has gone up by $1 000 during the year, then $1 000 will have to be added to $21 000 as part of the process to calculate payments to suppliers for operating expenses.

Question

Quizplus · Accepted Answer

In the direct method, an increase in accrued liabilities indicates that not all expenses have been paid in cash, so the increase should be subtracted from the operating expenses to calculate cash payments.

Qtopia Company Uses the Direct Method to Prepare Its Cash