Qtopia Electric Company uses the direct method to prepare its statement of cash flows.It has reported Operating Expenses of $63,000 on its income statement for the year 2014.If the balance in Accrued Liabilities has gone up by $6,000 during the year,then $6,000 will have to be added to $63,000 as part of the process to calculate payments to suppliers for operating expenses.

Question

Quizplus · Accepted Answer

According to the direct method, changes in operating assets and liabilities are used to calculate cash payments to suppliers for operating expenses. An increase in Accrued Liabilities means that Qtopia Electric Company has incurred expenses for which it has not yet paid in cash. Therefore, the $6,000 should be subtracted from the reported Operating Expenses of $63,000, not added to it. Hence, the correct answer is B, false.

Qtopia Electric Company Uses the Direct Method to Prepare Its