D is corrent. Cash payments to suppliers are converted to CGS as follows:| Cash payments to suppliers |
| + Increase in AP |
| – Increase in inventory |
Cost of Goods Sold
|
An increase in ending inventory represents the cost of items purchased during the period which remain unsold. Thus, the increase should be deducted from cash payments to suppliers. An increase in AP indicates that certain items purchased during the period have not yet been paid for and are not included in cash payments. Since these represent unrecorded purchases, the increase must be added to cash payments to suppliers to arrive at CGS.A is incorrent. Cash payments to suppliers are converted to CGS as follows:
| Cash payments to suppliers |
| + Increase in AP |
| – Increase in inventory |
Cost of Goods Sold
|
An increase in ending inventory represents the cost of items purchased during the period which remain unsold. Thus, the increase should be deducted from cash payments to suppliers. An increase in AP indicates that certain items purchased during the period have not yet been paid for and are not included in cash payments. Since these represent unrecorded purchases, the increase must be added to cash payments to suppliers to arrive at CGS.B is incorrect. Cash payments to suppliers are converted to CGS as follows:
| Cash payments to suppliers |
| + Increase in AP |
| – Increase in inventory |
Cost of Goods Sold
|
An increase in ending inventory represents the cost of items purchased during the period which remain unsold. Thus, the increase should be deducted from cash payments to suppliers. An increase in AP indicates that certain items purchased during the period have not yet been paid for and are not included in cash payments. Since these represent unrecorded purchases, the increase must be added to cash payments to suppliers to arrive at CGS.
C is incorrect. Cash payments to suppliers are converted to CGS as follows:
| Cash payments to suppliers |
| + Increase in AP |
| – Increase in inventory |
Cost of Goods Sold
|
An increase in ending inventory represents the cost of items purchased during the period which remain unsold. Thus, the increase should be deducted from cash payments to suppliers. An increase in AP indicates that certain items purchased during the period have not yet been paid for and are not included in cash payments. Since these represent unrecorded purchases, the increase must be added to cash payments to suppliers to arrive at CGS.
