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. The first transaction has been completed as an example. (If an amount has a decreasing effect use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45). Do not use a dollar sign $ for negative answers.) Cash Net Income(a) Purchased $104 of supplies for cash. -$104 $0(b) Recorded an adjusting entry to record use of $40 of the above supplies. (c) Made sales of $1,432, all on account. (d) Received $995 from customers in payment of their accounts. (e) Purchased capital asset for cash, $2,635. (f) Recorded depreciation of building for period used, $710.

Answer 1

Answer:

Effects of Transactions on Cash and Net Income:

                                                                                  Cash     Net Income

(a) Purchased $104 of supplies for cash.               -$104         $0

(b) Recorded an adjusting entry to record use

of $40 of the above supplies.                                    $0        -$40

(c) Made sales of $1,432, all on account.                   $0        $1,432

(d) Received $995 from customers in payment

of their accounts.                                                   $995         $0

(e) Purchased capital asset for cash, $2,635.      -$2,635      $0

(f) Recorded depreciation of building for period

used, $710.                                                                  $0        -$710

Explanation:

a) Data and Analysis:

a. Supplies $104 Cash $104

b. Supplies Expense $40 Supplies $40

c. Accounts receivable $1,432 Sales revenue $1,432

d. Cash $995 Accounts receivable $995

e. Capital asset $2,635 Cash $2,635

f. Depreciation Expense $710 Accumulated Depreciation $710

b) Only transactions that affect Cash have cash effects.  Transactions that affect net income are either revenue or expenses.  All other transactions that do not affect cash or net income are analyzed according to their basic effect on the accounting equation of assets = liabilities + equity.