- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 23. Understanding Cash Flow Statements
- Subject 2. Preparing the Cash Flow Statement
CFA Practice Question
A company had sales of 23,085 for the just-concluded year, with a gross margin of 45%. Its accounts receivables increased by 2,317 and inventory decreased by 894. On the basis of the direct statement of cash flows, what were the sales and COGS on a cash basis?
A. Sales: 20,768; COGS: 13,591
B. Sales: 20,768; COGS: 11,803
C. Sales: 25,402; COGS: 13,591
Explanation: Since accounts receivables increased, cash sales were less than shown.
Cash sales = Accrual sales - Increase in A/C Rec. = 23,085 - 2,317 = 20,768
Thus, Cash COGS = 12,697 - 894 = 11,803.
Cash sales = Accrual sales - Increase in A/C Rec. = 23,085 - 2,317 = 20,768
According to the accounting entity, COGS = Opening Inventory + Purchases - Closing Inventory, Purchases = COGS + Change in Inventory.
Thus, Cash COGS = 12,697 - 894 = 11,803.
User Contributed Comments 7
| User | Comment |
|---|---|
| danlan | Where does 12697 come from? 23085 * (1 - 45%) = 12697 |
| Yurik74 | 45% is for gross margin, and COGS is hence 55% |
| serboc | great question |
| Sam123456 | I guess that means you got it wrong lol. So did I though. |
| oneashok | this is not medium level, it is hard level difficulty.. good question |
| pulkitm | how is purchases = cash COGS??! |
| ange | @pulkitm: It does not say that. It says purchase = COGS + change in inventory. |