UNDERSTANDING ACCOUNTING TALK 24 Cost of Goods Sold vs Accounts / Trade Payable

When Purchases of goods / products for sale are undertaken on credit, the effect is an increase in Accounts / Trade Payable (a Liabilities Account).

In the Cash Flow Statement, these Purchases on credit are reflected in the Operating Activities Account as an increase.

Naturally, when the Purchases on credit are paid for, there is a corresponding decrease in Cash (an Asset Account) and the same decrease in Accounts / Trade Payable –which transactions are also reflected in the Operating Activities Account of the Cash Flow Statement.