Cash Paid to Suppliers

When converting a cash flow statement prepared using the indirect method presentation into one using the direct method presentation, cash paid to suppliers can be estimated by taking cost of goods sold from the income statement and subtracting the changes in two working capital accounts from the indirect method presentation of cash flows: inventory and accounts payable.

AT&T’s operating expense items from the income statement are presented below.

attexpense.jpg

To estimate cash paid to suppliers for 2006, we take the 27,349 cost of sales and subtract the (2,213) change in accounts payable and accrued liabilities. Since AT&T has no “inventory” per se, this is the only adjustment needed in this case. Total cash paid to suppliers is thus 27,349 – (2,213) = 29,562.

attindirectcashflow1.jpg

For more information, see all articles on: Accounting, Adjusting Reported Financial Statements, Financial Statement Analysis, Fundamental Analysis

See also:
  • Cash Flow from Operating Activities
  • Cash Flow Statement – The Direct Method
  • The Cash Cycle
  • Accounts Payable
  • Converting an Indirect Method Statement of Cash Flows to the Direct Method
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