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Last year, Violet Company reported cost of goods sold of $120,000. Inventories decreased by $34,000 during the year, and accounts payable increased by $30,000. The company uses the direct method to determine net cash flow from operating activities on the statement of cash flows. The cost of goods sold adjusted to a cash basis would be:
a.$93,000.
b.$120,000.
c.$79,000.
d.$56,000.
Expert Answer
In the direct method cash payment for purchases = costs of goods sold+increase in inventories-increase in accounts payable
Thus cash payment for purchases = 120,000 – 34,000 – 30,000
= 120,000 – 64,000
= $56,000
Thus the answer is option “d” $56,000
