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Basic Question 9 of 11
Taloga Company has the following information for its accounts payable: Balance at December 31, 2015, $40,000; Balance at December 31, 2016, $25,000. How should Taloga treat this information when preparing its statement of cash flows under the indirect approach for the year ending December 31, 2016?
B. Add $15,000 to cash flow from operations
C. Subtract $15,000 from cash flow from operations
A. Add $15,000 to cash flow from financing activities
B. Add $15,000 to cash flow from operations
C. Subtract $15,000 from cash flow from operations
User Contributed Comments 6
| User | Comment |
|---|---|
| ravdo | This is a classic! Love this question. |
| DonAnd | using the direct method would you have added it? |
| jingie | No, direct and indirect methods should arrive at the same cash flows. You subtract 15k because it was used up to reduce AP. |
| gill15 | Thinkin DonAnd is referring to cash paid to suppliers with the direct method....then you would add it. |
| magus | You have to subract it every time irrespective of method.....paying down a payable is a use of funds.... |
| majesty | In Direct Method you start from the top and go to the bottom, while in Indirect Method you start from the bottom and go to the top. Simplifying Income Statement: Revenue - COGS = Net Income => Revenue = Net Income + COGS. When increasing COGS (used in Direct Method adjustments), you decrease Net Income (used in Indirect Method adjustments) for Revenue to stay in balance. |
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Learning Outcome Statements
describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data
CFA® 2024 Level I Curriculum, Volume 2, Module 4.