![]() ![]() ![]() This means that cash paid for inventory purchases was $70,000 less than total inventory purchased: Cash Paid for Inventory = Inventory Purchased Minus the Increase in Accounts Payable (or, plus a decrease in accounts payable) = $1,120,000 – ($270,000 – $200,000) = $1,050,000Įmerson paid $480,000 of cash for wages during the year. Inventory purchased must be adjusted for the portion that was purchased on credit. Inventory purchased is only the starting point for determining cash paid for inventory. Inventory Purchased = Cost of Goods Sold Minus the Decrease in Inventory (or, plus an increase in inventory) On the other hand, purchases would be greater than cost of goods sold if inventory increased. ![]() This would mean that some of the cost of goods sold came from existing stock on hand rather than having all been purchased during the year. But, the amount of inventory actually purchased will be less than this amount if inventory on the balance sheet decreased. Bear in mind that cost of goods sold is the dollar amount of inventory sold. If net receivables had decreased, cash collected would have exceeded sales.Įmerson paid $1,050,000 of cash for inventory. Thus, cash received from customers was $3,000,000. This means that of the total sales of $3,250,000, a net $250,000 went uncollected. On the other hand, one can infer this amount by reference to sales and receivables data found on the income statement and balance sheet: Cash Received From Customers = Total Sales Minus the Increase in Net Receivables (or, plus a decrease in net receivables) = $3,250,000 – ($850,000 – $600,000) = $3,000,000Īccounts receivable increased by $250,000 during the year ($850,000 – $600,000). Emerson’s information system could be sufficiently robust that a “database query” could produce this number.
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