Question

Kettleman Corp. uses the Accounts payable account for amounts owed to both inventory suppliers and other vendors, such as the utility company. Kettleman is preparing its statement of cash flows under the direct method and trying to figure out "Cash paid for inventory and operating expenses". The accountant pulls the following information:

Revenue: $500,000

Cost of Goods Sold: $275,000

Operating expenses: $80,000

Inventory: $37,000 (beginning) and $52,000 (ending)

Accounts receivable: 50,000 (beginning) and $62,000 (ending)

Accounts payable: $90,000 (beginning) and $73,500 (ending)

Prepaid expenses: $4,000 (beginning) and $12,000 (ending)

What amount should Kettleman report for "Cash paid for inventory and operating expenses"?

Answer 1

Purchase of inventory = Cost of goods sold + ending inventory - beginning inventory

= $275,000 + $52,000 - $37,000

= $290,000

Amount paid for Operating expenses = Operating expenses + Ending prepaid expenses - beginning prepaid expenses

= $80,000 + $12,000 - $4,000

= $88,000

Cash paid for inventory and operating expenses = Beginning Accounts payable + Purchase of inventory and operating expenses - Ending Accounts payable

= $90,000 + $290,000 + $88,000 - $73,500

= $394,500