In the 2008 Financial Statement Analysis book, on page 279, there is a section where its converting cash flows from inderect to direct method. On STEP 3, it says, “Cash paid to employees … $4133” with a footnote explaining how it got that answer: Salary and wage expense of $4123 less increase in salary and wage payable of $10. So… Shouldn’t the answer be $4113 instead of $4133. Its adding the ten dollars instead of subtracting. Or am I misunderstanding? Thanks in advance to anyone that helps.
A Liability increase would become available Cash. So it is correct.
Example: if A/P decrease $10 that is a USE of cash (just think about paying down the liability), so in the same since an increase of $10 of a W/C liability account is a SOURCE of cash. Therefore the increase of $10 You may be confusing this with the scenario of constructing a direct method CF statement from scratch, when the “rules” appear to be in reverse…
Ah!!! I see. Again, Thanks guys!!!