Davis Company uses the direct method to prepare its statement of cash flows. Refer to the following information reported for the year 2014: Operating expenses, $26,000
Accrued Liabilities, beginning balance, $3,000
Accrued Liabilities, ending balance, $5,000
What amount was paid to suppliers for operating expenses on a cash basis?
A)$29,000
B)$28,000
C)$24,000
D)$31,000

Question

Quizplus · Accepted Answer

The amount paid to suppliers for operating expenses on a cash basis can be determined by adjusting the change in accrued liabilities. The increase in accrued liabilities from $3,000 to $5,000 means that $2,000 of expenses were accrued but not yet paid. To determine the amount paid on a cash basis, we need to subtract the increase in accrued liabilities from the operating expenses. Therefore, the amount paid to suppliers for operating expenses on a cash basis is $26,000 - $2,000 = $24,000. Choice C is the correct answer.

Davis Company Uses the Direct Method to Prepare Its Statement