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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Cash paid for merchandise purchases

The cost of merchandise sold for Kohl's Corporation for a recent year was $12,165 million.

The balance sheet showed the following current account balances (in millions):

 

Balance,

End of Year

Balance,

Beginning of Year

Merchandise inventories $4,038 $3,814
Accounts payable 1,251 1,511

Determine the amount of cash payments for merchandise.

To determine

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Direct method: This method uses the basis of cash for preparing the cash flows statement.

Cash flows from operating activities: In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.

Cash Receipts: It encompasses all the cash receipts from sale of goods and on account receivable.

Cash Payments: It encompasses all the cash payments that are made to suppliers of goods and all expenses that are paid.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Direct method)
Add: Cash receipts.
Cash receipt from customer
Less: Cash payments:
To supplier
For operating expenses
Income tax expenses
Net cash provided from or used by operating activities

ToDetermine: The amount of cash paid for merchandise.

Explanation

Cash payments for purchase represents the total amount of cash paid for the purchase as well as to the accounts payable.

Therefore, the amount of cash paid for merchandise is $12,749.

Working notes:

Calculate increase or decrease in merchandise inventories:

Increase or decrease inmerchandise inventories}=(Beginning balance - Ending balance)=($3,814$4,038)=$<

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