Cash Paid to Vendors/Suppliers reading, accounts, accounting, difficulty, starting

simeezee

I'm reading the cash flow section of FRA and I'm having difficulty grasping this concept:

Cost of Goods Sold +/- Inventory Delta = Purchases +/- Accounts Payable Delta = $ Paid

I get why we consider the accounts payable - we are trying to figure out how much of the purchases was credit. What I don't get is why the starting point is COGS. COGS is the cost of the inventory sold - that does not mean that inventory was purchased in that accounting period.

Can someone please explain?

ftwcfa

That makes much more sense now. Thank you!

spartanag07

Spartanag, you dont have to start there with COGS.

It is simply trying to say that: Your Cash Outflow for Purchases is your Purchases for that period +/- Delta of your Account Payables. I guess this is clear and this is probably what is required from you to know.

Now, lets see how COGS gets in this picture.

Lets start with Ending Inventory. My Ending Inventory from the period is =

Beginning Inv + Purchases - COGS.

So, from this equation, my Purchases = Ending Inv - Beg Inv + COGS

or, Purchases = COGS +/- Delta Inv, as you have put in your question.

So, other way of getting your Cash Flow from Purchases could be =
COGS +/- Delta Inv +/- Delta Payables

Hope this simplifies a bit.