A company uses the direct method to prepare the statement of cash flows. How will the amount of cash payments to suppliers be computed?

Question

Quizplus · Accepted Answer

The amount of cash payments to suppliers is computed as purchases minus the increase in accounts payable. This formula takes into account any changes in accounts payable, which indicates how much the company owes to its suppliers for goods or services received but not yet paid for. Subtracting the increase in accounts payable from purchases gives the cash payments made to suppliers during the year.

A Company Uses the Direct Method to Prepare the Statement