Question

Determining the Impact of Transactions, Including Analysis of Cash Flows

Answer 1

Answer:

Vernon Company

Determining the Impact of Transactions, Including Analysis of Cash Flows

Balance Sheet equation is Assets = Liabilities + Equity

a. January 10: Asset increased (Inventory) +$18,000 = Liabilities increased (Accounts Payable) +$18,000 + Equity

b. March 1: Asset increase (Cash) +$45,000 = Liabilities increased (10% Notes Payable) +$45,000 + Equity

Summary:

Assets = $63,000

Liabilities = $63,000

Equity = $0

Explanation:

a) Data and Analysis:

January 10: Inventory $18,000 Accounts Payable $18,000

March 1: Cash $45,000 10% Notes Payable $45,000

b) The fundamental accounting equation, Assets = Liabilities + Equity, divides Vernon's balance sheet into two main sides.  On one side are Vernon's assets and on the other side are its liabilities and equity.  That is, the two sides of Vernon's balance sheet are always equal, provided the double-entry system of accounting is equally observed.