CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which of the following changes must a company add to the cost of goods sold reported on the income statement in calculating cash payments for inventory?
A. Increase in inventory
B. Increase in accounts payable
C. Increase in accounts receivable
Explanation: An increase in inventory would be added to the cost of goods sold reported in the income statement in calculating cash payments for inventory. An increase in inventory represents a cash outflow that is not yet reported as an expense on the income statement.

User Contributed Comments 3

User Comment
Chebum What about it if was bought on credit?
rjdelong yes Chebum, seems like that would show in AP, but I suppose many other non inv items would also show in AP, so A is better answer...? Can someone explain why not B?
Inaganti6 Increase in Accounts Payable means that's the credit amount that was NOT paid in cash. Which means the actual increase in AP is subtracted during calculating of cash payments made because there is a difference between the actual inventory you have and what you paid for it.
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