If COGS is 600, ending inventory is 150, and payables are 120, what are purchases and payments?

If COGS is 600, ending inventory is 150, and payables are 120, what are purchases and payments?

• A. Purchases 750; Payments 630
• B. Purchases 860; Payments 740
• C. Purchases 750; Payments 700
• D. Purchases 600; Payments 480

Answer: (A)

The key idea is linking COGS to purchases through changes in inventory, and linking purchases to cash payments through accounts payable. COGS equals opening inventory plus purchases minus ending inventory. Since opening inventory isn’t given, assume it’s zero, so purchases = COGS + ending inventory = 600 + 150 = 750. Accounts payable track what you owe suppliers. Ending AP equals opening AP plus purchases minus payments. With opening AP assumed zero, payments = purchases − ending AP = 750 − 120 = 630. So, purchases are 750 and payments are 630.

The key idea is linking COGS to purchases through changes in inventory, and linking purchases to cash payments through accounts payable.

COGS equals opening inventory plus purchases minus ending inventory. Since opening inventory isn’t given, assume it’s zero, so purchases = COGS + ending inventory = 600 + 150 = 750.

Accounts payable track what you owe suppliers. Ending AP equals opening AP plus purchases minus payments. With opening AP assumed zero, payments = purchases − ending AP = 750 − 120 = 630.

So, purchases are 750 and payments are 630.