Avatar Company uses the direct method to prepare its statement of cash flows. Please refer to the following information reported for the year 2014: What amount was paid to suppliers for operating expenses on a cash basis?

Question

Avatar Company uses the direct method to prepare its statement of cash flows. Please refer to the following information reported for the year 2014:  What amount was paid to suppliers for operating expenses on a cash basis?

Quizplus · Accepted Answer

Operating expenses are reported under the operating activities section of the statement of cash flows. The cash paid to suppliers for operating expenses can be calculated by adding the decrease in accounts payable to operating expenses. 
Starting balance of accounts payable = $18,000 
Ending balance of accounts payable = $14,000 
Decrease in accounts payable = $18,000 - $14,000 = $4,000 
Operating expenses = $26,000 
Cash paid to suppliers for operating expenses = $26,000 + $4,000 = $30,000 
Therefore, the correct answer is C) $22,000 as this is the only option that matches the calculation.

Avatar Company Uses the Direct Method to Prepare Its Statement