Now, the next item here is selling expense.
My selling expense is 100 bucks, that's a debit.
Now normally if there was nothing else, I would just credit cash 100, and be done with
it.
But in the question they tell you that, what do they say?
They said selling expense includes bad debt expense of 20.
Now bad debt expense of 20 is included in there.
So, what does that mean?
Normally, what might you do?
Normally, when you record bad debt expense, you might debit bad debt expense 20, and credit
allowance for uncollectable for 20.
The allowance goes to the balance sheet.
So, if you look over here, here's your allowance, 20.
Then the expense would be bad debt expense, but when you look at your income statement
do you see the words bad debt expense?
I will be moving around a lot today.
Do you see bad debt expense, no.
So, they told me it's buried in this number.
That means that instead of debiting bad debt expense, we debited selling expense.
That means when we debited selling expense, we didn't credit cash because 20 of it was
credited to allowance for doubtful accounts.
Therefore, we really only credited 80.
So, of the $100 of expense, 20 of it was for allowance for doubtful accounts.
The other 80 must of been a payment of cash, so I call that payments for selling expense.
Payment for selling expense, outflow credit 80.
So, we're on our way to getting to this number, which I think was 135.
Which is the number that we knew earlier, we're just trying to figure out how to get
there.
Next item, G and A. Let's assume that everything in G and A was just paid for cash.
So debit general and admin expense, credit cash.
So I'll just call it payments for G and A. Boom.
Next item, depreciation.
Now depreciation, what is normally your expense?
What's your normal journal entry?
You debit depreciation expense, credit accumulated depreciation.
With depreciation expense, I see it here listed and I know that it's not cash.
Because it wasn't a credit to cash, it was a credit to accumulated.
So, because of that, is it direct cash, no.
Therefore, I can ignore it.
Now the one thing I do wanna do, is accumulated depreciation is 50.
I want to set up 50, I'm done with that T-account.
So that way, I can kinda keep track of it.
This did not affect cash, non-direct cash.
Now, later on when I do the indirect method, what do you think is gonna happen?
It's already taken out of here.
Isn't 140 too low by this $50 expense?
Because, don't I still have this $50 burning a hole in my pocket, yeah.
So I'm gonna add back the 50, that would be 190.
Why would it go up?
Because I already deducted this 50, this was not cash.
So in the direct method, ignore it.
In the indirect, add it back.
Hmm, OK, OK, that makes sense, sure.
Next item is interest expense.
Now, we have an interest expense of how much, of 30 bucks.
So, let me clean this up a little bit.
We have interest expense of $30.
Debit interest expense 30.
What we're trying to do is, we're trying to see how much of that interest really was cash.
So how much of the interest expense really was cash?
Now, if we issued bonds, remember the journal entry a long time ago, we credited bonds payable,
we debited discount, we had cash?
This was $1,000 bonds, I got 900 and the difference was 100.
Then we took the 100 and we amortized it, let's just say over 20 years straight line,
to keep it easy, five, five, five, five, five.
So every year we amortize out the discount of five, we pay them some cash and the difference
is interest expense.
Remember that?
Oh yeah, that was in bonds.
Even my videographer is going "I remember that, ya, ya, that was good stuff."
Back over here, if interest expense is 30, and we amortized out the discount of five,
how do I know we amortized it?
'Cause it's right here, that was the change not the balance.
The difference must be cash of 25.
So, of the interest expense of 30, how much did I really pay?
I really only paid 25, because it is expense 30, but some of it was that discount amortization,
that increased the expense, but the cash stayed the same.
'Cause the cash is based on the stated rate, and this is based on the affected yield or
market.
That difference was the discount.
So, what's payments for interest, credit 25.
Outflow 25, payments for interest, boom.