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Inventory purchases for the year were $126,000. Beginning accounts payable was $22,000 and ending was $29,000. Under the direct method, what is cash paid for inventory?
A$133,000
B$119,000
C$126,000
D$177,000
Answer & Solution
Correct answer: B. $119,000
1. Cash paid = beginning AP + purchases − ending AP.
2. = $22,000 + $126,000 − $29,000.
3. = $148,000 − $29,000 = $119,000.
4. Trap: $133,000 (option B) adds the ending payable instead of subtracting it; a rise in AP means less cash was paid.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.2.4 "Two-step calculation for cash paid for inventory", p.282_
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