CFA Practice Question

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CFA Practice Question

Beginning accounts payable: $34,000
Ending accounts payable: $32,000
Beginning inventory: $80,000
Ending inventory: $94,000
Cost of goods sold: $560,000
Net sales: $990,000

What was the cash outflow to suppliers for merchandise?
A. $548,000
B. $572,000
C. $576,000
Explanation: Cash payments for purchases = Cost of Goods Sold + Increase in Inventory or - Decrease in Inventory AND + Decrease in Accounts Payable or - Increase in Accounts Payable. $560,000 + 14,000 + $2,000 = $576,000 cash paid for merchandise.

User Contributed Comments 6

User Comment
rpfranca Why accounts payable is added ? Shouldn´t it be subtracted, since an decrease of this account will result in a use of cash, instead of a source ?
SueLiu This question is asking how much cash you SPENT, the outflow. So a decrease in A/P means you paid out $2000 which should be added to the Cash Payments for Purchases.
treakj Tricky question... that`s right, since it is asking how much SPENT, I should have inverted the whole rationale
o123 direct method of cash flow analysis
rrichmondo Oops got the sign wrong on the change in payables
showmethemoney man this is a good one
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