Question

You wish to analyze your company’s cash payments to suppliers and its purchases discounts. Where do you find this information? Explain.                                      

Answer 1

Cash payments to vendor’s information can be gathered from the cash flow statement prepared under the direct method. Under direct method of cash flow statement cash payments to vendors are shown as cash outflows in cash flow from operating activities.

Purchase discounts can be gathered from Income statement. Purchase discount is reduced from purchases during the year and net purchases are taken into account for calculating cost of goods sold in Income statement.

In short, cash flow statement contains cash receipts and cash payments. Income statement contains non-cash items.