This video shows how to calculate the cash paid to suppliers for the operating section of the Statement of Cash Flows when a company uses the direct method.

You obtain the cash paid to suppliers by converting the cost of goods sold from the Income Statement to a cash-basis. This is done using the following formula:

Cash Paid to Suppliers = Cost of Goods Sold + Increase in Inventory – Decrease in Inventory + Decrease in Accounts Payable – Increase in Accounts Payable