Question

Transactions that affect earnings do not necessarily affect cash. Identify the effect, if any, that each of the following transactions would have upon cash and net income. (If an amount reduces the account balance then enter with negative sign preceding the number e.g 15,000 or parentheses e.g. (15,000).
Cash Net Income
(a) Purchased $133 of supplies for cash.
(b) Recorded an adjusting entry to record use of $31 of the above supplies.
(c) Made sales of $1,297, all on account.
(d) Received $865 from customers in payment of their accounts.
(e) Purchased equipment for cash, $2,528

Answer 1

Answer:

a. Purchase of supplies affect cash $(133) and will affect income only once the supplies are used and will be recognized as expenses.

b. The use of suppliers affects net income as this is recognize as expense, doesn´t affect cash.

c. Sales affects net income even if they are not paid, doesn´t affect cash because is on account.

d. Receive payment from customers affects to cash due to money will be received $865, doesn´t affect net income.

e. Purchase of equipment will generate a cash outflow $(2,528), doesn´t affect net income.