Question

Balance sheet data for Kilroy Company for 2022 appears below:

                               January 1, 2022     December 31, 2022
ASSETS:
  Cash                             27,000               43,000
  Accounts receivable              39,000               26,000
  Inventory                        42,000               88,000
  Prepaid insurance                21,000               29,000
  Land                             37,000               72,000
  Equipment                        61,000               94,000
  Accumulated depreciation        <14,000>             <25,000>

LIABILITIES + EQUITY:
  Accounts payable                 33,000               41,000
  Income taxes payable             21,000               15,000
  Unearned revenue                 25,000               39,000
  Notes payable                    51,000               75,000
  Common stock                     34,000               93,000
  Retained earnings                49,000               64,000

Kilroy Company's 2022 income statement is given below:

  Sales revenue                               329,000
  Cost of goods sold                          242,000
  Depreciation expense                         11,000
  Insurance expense                            16,000
  Loss on sale of land                         22,000
  Income tax expense                           10,000
  Net income                                   28,000

Kilroy Company purchased land for $69,000 cash during 2022.

Calculate the amount of cash paid to suppliers for purchases of
inventory reported by Kilroy Company in its 2022 statement of
cash flows.

Answer 1

Cash paid to Suppliers
Cost of goods sold	$ 242,000.00
Add: Increase in Inventory	$    46,000.00
Net Purchases	$ 288,000.00
Less: Decrease in accounts Payable	$    (8,000.00)
Amount paid to supplier	$ 280,000.00

Cash paid to suppliers for purchases of

inventory reported by Kilroy Company in its 2022 statement of

cash flows.= $280,000

Basically businesses pay for Cost of goods sold but we can see that inventory is increasing which means cost of goods sold is less than total purchases. Cost of goods sold plus Increase in inventory is the amount of purchases.

In the above case total purchase is $288,000 but all of the purchases are not paid In the current year indicated by an increase in Accounts payable account.

An increase in accounts payable indicate that cash is paid to supplier is lower than purchases from supplier. When we deduct decrease in supplier from total purchases we get net cash paid to suppliers.