COGS question

A company had sales of 23,085 for the just concluded year, with a gross margin of 45%. Its accounts receivables increased by 2,317 and net working capital decreased by 894. On the basis of the direct statement of cash flows, what were the sales and COGS on cash basis? A. Sales: 20,768; COGS: 13,591B. Sales: 25,402; COGS: 11,803C. Sales: 20,768; COGS: 11,803D. Sales: 25,402; COGS: 13,591


Sales = 23,085 - 2317 = 20,768 COGS = 23,085*.55 - 894 = 11,803 So C Find your COGS and then you also got money by decreasing your NOWC so that will decrease your COGS. For sales, you must subtract the increase in receivables since it is cash you did not get from your sales.

the correct answer is C. Can someone explain pls…

easy they ask you for sales and cogs from a cash accounting point of view. Sales : the increase on receivables tell you that not for all that you sold you received cash therefore you have to deduct the portion that you did not receive payment and that is the increase in receivables Cogs; Working capita= current assets- current liabilities.working capital decreased. that means simplistic thinking that either the current assets decreased or current liabilities increased. Either way that would translate into a decrease in inventories or increase in accounts payable, which are both considered inflows. that means that you reduce COGS by that amount.

thanks guys