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Greetings sir,
I watched your lecture on Cash flows, it was very well explained. Then for added study, I began readings its Chapter in the Kaplan Text Book.
I got confused in their illustration for Direct methods. They are adding expenses to the payable control account as part of the Purchases (Operating Costs added to the T-account). I do not understand why, because you didnt add any expenses in the lecture during your explanation as far as I remember to the Payable Account.
Please explain how Operating Costs is considered a Purchase, since the former is made a subheading under it within the T account (W2)
I do not have the Kaplan Text Book and I am not clear as to what you say they are doing.
What is explained in my lecture with regard to the direct method is all that is needed for the exam.
Payable Account
——————————————
Cash paid $……| Balance B/f $
Balance c/f $…..| Purchases
………………….| – Cost of Sales (no inventory) ………………….|from Sales Revenue in
………………….|P&L $
………………….| – Operating costs from ………………….|Administration in P&L $
_____________|_____________Sorry, but again I do not have the Kaplan book and I cannot answer what you ask without seeing the example. (And it may be because of the formatting, but I cannot make sense of the t-account and I do not know why they produce a t-account. T-accounts are rarely needed in the exam, even as workings, because it is not that kind of exam).
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