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Hello Tutor,
I have a question related to wages and salaries for this company: it’s said that the statements for previous year showed an acccrual of $1.500, which means that this year we should record the reversal of that accrual amount, doesn’t it?
So the payment is calculated as -1.500 + 10.500 – 750 = 8.250
But as per textbook, this opening amount is treated like as if there was no accrual from last year.
Can you please show me how to make sense of it?
Thank you!
BTime had the following transactions during the year.
· Purchases from suppliers were $1,9500, of which $2,550 was unpaid at the year end. Brought forward payables were $1,000.
· Wages and salaries amounted to $10,500, of which $750 was unpaid at the year end. The financial statements for the previous year showed an accrual for wages and salaries of $1,500.
· Interest of $2,100 on a long term loan was paid in the year.
· Sales revenue was $33,400, including $900 receivables at the year end. Brought forward receivables were $400.
· Interest on cash deposits at the bank amounted to $175.
Using the direct method, what is BTime’s cash flow from operating activities?On the basis of what you have typed it would seem that you are correct.
However I would need to see the whole question and answer to be able to be certain.
Hello Tutor,
Thank you for your reply.
Here is the question:
“BTime had the following transactions during the year.
· Purchases from suppliers were $19,500, of which $2,550 was unpaid at the year end. Brought forward payables were $1,000.
· Wages and salaries amounted to $10,500, of which $750 was unpaid at the year end. The financial statements for the previous year showed an accrual for wages and salaries of $1,500.
· Interest of $2,100 on a long term loan was paid in the year.
· Sales revenue was $33,400, including $900 receivables at the year end. Brought forward receivables were $400.Using the direct method, what is BTime’s cash flow from operating activities?”
And this is the solution from BPP book, which I have doubt for the “cash paid to employees” of $11,250:
$ $
Cash flows from operating activitiesCash received from customers ($400 + $33,400 – $900) 32,900
Cash paid to suppliers ($1,000 + $19,500 – $2,550) (17,950)
Cash paid to employees ($1,500 + $10,500 – $750) (11,250)
Interest paid (2,100)Net cash flow from operating activities 1,600
Again, thank you for your help!
The BPP answer is correct.
The phrase “wages and salaries amounted to $10,500” on its own could mean the total expense or it could mean the total cash paid. However because it is followed by “of which $750 was unpaid” etc. it must mean that it is the total expense. Therefore the cash actually paid must be lower by $750. The accrual from last year will have been paid this year which increases the cash outflow.
I see. Thank you tutor!
I just thought that for the accrual, we should always reverse it in the next period, so that we get the correct number for expense of that year?
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