[setmefree]

hello, does anyone have a good way to remember Cash basis to accrual for COGS, operating expenses, insurance expenses. (or accrual to cash) I am keep getting wrong with the sign

[turo9992000]

I couldn't remember the tricks that the CPA review courses give. I just walk myself through each account. I think about if something is payable, then that means that I still owe it, and cash hasn't been paid. If I'm going from accrual to cash, then I reduce my expenses. Same thing for receivables. After doing a lot of MCQs it does not take long to do these types of questions.

[setmefree]

I can seems to make logic out of it, the AP decrease, isn't this means cash paid out? so it should be subtracted it?

In its 20X1 income statement, Kilm Co. reported cost of goods sold of $450,000. Changes occurred in several balance sheet accounts as follows:

Inventory $160,000 decrease
Accounts payable-suppliers 40,000 decrease
What amount should Kilm report as cash paid to suppliers in its 20X1 cash flow statement, prepared under the direct method?

A.

$250,000

B.

$330,000
Incorrect
C.

$570,000

D.

$650,000

[turo9992000]

Which is the correct answer?

[turo9992000]

is it B?

1. Start with COGS that's the accrual balance.
2. If inventory decreased that means that existing inventory was used for COGS and cash was not paid, so subtract that from COGS
3. AP decreased, that means that cash payments were made to the suppliers, so add back that amount.

(450)
160
(40)
—-
330

[setmefree]

the answer is B.
Thanks a lot. I got it now, I kept thinking it was start with cash balance earlier.

[setmefree]

Thanks a lot, I think im getting the concept now.

Duke Co. reported cost of goods sold of $270,000 for 20X1. Additional information is as follows:

December 31 January 1
———– ———
Inventory $60,000 $45,000
Accounts payable 26,000 39,000
If Duke uses the direct method, what amount should Duke report as cash paid to suppliers in its 20X1 statement of cash flows?

A.

$242,000

B.

$268,000

C.

$272,000
Correct
D.

$298,000

[turo9992000]

Is D the right answer? That's what I came up with.

Same thing start with COGS $270. That's what's reported in the income statement.

Inventory increased 15 during the year that means 15K cash was given to suppliers for inventory add that to COGS.

Accounts payable decreased which means that 13k was paid to them, add that to COGS as well.

270
15
13
___
298

[setmefree]

it is D. this is really clear layout, but I think will be time consuming for the exam

[setmefree]

wish you luck on your June 9th exam

[turo9992000]

Thanks, I hope I will finally be finished.

Use t accounts for your studying, to track where everything goes. After a while you won't need t accounts anymore. Even creating t accounts without the labels and formatting, the above question takes about 1 minute.

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