Tuesday Electric Company uses the direct method to prepare its statement of cash flows.Tuesday has reported operating expenses of $63,000 on its income statement for the year 2017.If the balance in accrued liabilities has increased by $6,000 during the year,then $6,000 needs to be added to $63,000 to calculate payments to suppliers for operating expenses.

Question

Quizplus · Accepted Answer

The increase in accrued liabilities means that the expenses were incurred but not yet paid in cash during the year. Therefore, the $6,000 increase in accrued liabilities should be subtracted from the operating expenses of $63,000 to calculate payments to suppliers for operating expenses, not added. The correct calculation is $63,000 - $6,000 = $57,000.

Tuesday Electric Company Uses the Direct Method to Prepare Its