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

1)

Cash paid for inventory purchase:

Purchase cost = Cost of goods sold + Desired ending inventory-Beginning inventory

= 275,000+52000-37000 = $290,000

Calculation of cash paid for inventory:
Accounts Payable (beginning)	$90,000
Add: Purchases made during the period	$290,000
Less: Accounts Payable(ending)	$73500
Cash paid to suppliers for inventory	$306,500

2)

Cash paid for operating expenses

Calculation of cash paid for operating expenses:
Operating expenses incurred	$80,000
Add: Prepaid expenses (ending)	$12,000
Less: Prepaid expenses (beginning)	$4,000
Cash paid for operating expense	$88,000