标题: cash paid to suppliers [打印本页] 作者: w1977 时间: 2011-7-11 19:57 标题: cash paid to suppliers
why would you subtract a decrease in AP?作者: homie 时间: 2011-7-11 19:57
I am relatively new to AF, compared to all of you! I have a very good background for Finance.
I believe this doubt is not yet solved for you!
The last min studies will surely confuse us on concepts even we were thorough on them before.
Here is the answer to CFO calculation wrt AP Payments
Strictly, any payment is an outflow of cash.
Payment for firm 's Operations are outflow of cash.
There is no exception to it for AP Payments.
Ofcourse, it reduces liability of the firm. Hence, reduce cash and liability in the B/s.
Show outflow , means -ve in CF statement. Categorize it to "Operations" because it is payment during normal (regular)course of business.
The supplier firm's CF statment will show "INFLOW for cash " as received from Customer.
So it is not an inflow to the "Paying Firm" . OK?作者: rkapoor 时间: 2011-7-11 19:57
You have the incorrect formula. For cash paid to supplies you subtract an increase in AP because that represents cash that you did not pay but is still due. Your logic is correct.作者: ogoluwa 时间: 2011-7-11 19:57
I didnt mention any formula. It is only logic that i gave.
I explained it from CF statement. If you ask to nail down each element of it, say Cash paid to suppliers. Then, to attack it easy in less time, here is the answer.
Cash paid reduces AP Balance.
Op. Bal AP-cash paid to supppliers +Purchases=Clo. Bal AP.
Take the cash paid to the other side of equation
Op. Bal AP +Purchases-Clo. Bal AP=cash paid to supppliers.
500+1000-100=1400
500+1000-0=1500
500+0-100=400
500+1000-800=700
So effectively in all cases, You always will only reduce the closing bal of AP, be it an increase or decrease. The only case where you will increase Closing bal of AP, is when you paid in advance to suppliers , like prepaid expenses. where you say in equation - (-closing bal AP) which then, becomes a +.
A clo. bal of AP means that all other purchases and opening balances are wiped off by payments and only the net balance in closing is remaining as due. A closing balance of -ve liability, that means an asset, means prepaid liabilities, over and above what was due. Hence, adding back in the formula above, to obtain cash paid to suppliers.
Tell me, if it is still unclear.作者: trogulj 时间: 2011-7-11 19:57
you are talking about two different things here. It is cash paid to supplies not cash inflow to the firm. that is why you subtract an increase in AP.作者: burnsy562000 时间: 2011-7-11 19:57
mgf3306 Wrote:
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> you are talking about two different things here.
> It is cash paid to supplies not cash inflow to the
> firm. that is why you subtract an increase in AP.
Why would you subtract an increase in AP from CFO?...You wouldn't. There was no cash outflow or inflow in that case, therefore it would not affect the CF of the firm. All that would happen is an offsetting increase in an asset.作者: nitoha 时间: 2011-7-11 19:57
no, again, people are confusing what the questions was here. It was about cash paid to suppliers, thus you subtract an increase in AP.作者: joemoran 时间: 2011-7-11 19:57
ok now im just straight confused!!! haha where is oz001!!作者: pacmandefense 时间: 2011-7-11 19:57
@babycakes - your question is pretty vague. What are you saying a decrease in AP should be subtracted from?
@mgf - i dont think you have a frickin clue作者: lc26mizzou 时间: 2011-7-11 19:57
ok lets say your tryin to calc cash paid to suppliers
the solution takes
COGS
+ Inventory (which has increased)
- AP (which has decreased)
I'm wondering why did they subtract AP when it has decreased?作者: ajpheif16 时间: 2011-7-11 19:57
when AP goes down, who does the cash go to?
just visualize cash flow problems and they become much much easier.
draw a diagram if you have to.作者: ishfaque 时间: 2011-7-11 19:57
you are all idiots. That is the wrong formula. this is not even worth anyone's time anymore.
COGS
+ Inventory (which has increased)
- ANY INCREASE IN AP作者: farrukhsadiq 时间: 2011-7-11 19:57
babycakes Wrote:
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> ok lets say your tryin to calc cash paid to
> suppliers
>
>
> the solution takes
>
>
> COGS
>
> + Inventory (which has increased)
>
> - AP (which has decreased)
>
> I'm wondering why did they subtract AP when it has
> decreased?
This is WRONG! It should be + AP (which has decreased) - Whatever source you are using, it is wrong; consult the reading on CFA volume 3 and you will find they clearly state that an increase in AP is subtracted from cash paid to suppliers.
To explain to the rest the logic: COGS is the original amount - you want to see how much was paid to suppliers out of this amount. First of all you will need to see if you purchased more that units sold during the year (PAID MORE CASH than represented in COGS) or purchased less than units sold during the year (PAID LESS CASH than represented in COGS). If inventory increases, it means you purchases more. Thus, you need to add to COGS the increase in inventory. Now, your purchases could be paid by cash or by credit. If your account payable decreased, it means you paid more in cash than the amount presented by purchases. This means that extra cash was paid out to suppliers and thus added to your cash paid to suppliers.