Question

Weib Manufacturing experienced the following events during its first accounting period: Recognized revenue from cash sale of products. Recognized cost of goods sold from sale referenced in Event 1. Acquired cash by issuing common stock. Paid cash to purchase raw materials that were used to make products. Paid wages to production workers. Paid salaries to administrative staff. Recognized depreciation on manufacturing equipment. Recognized depreciation on office furniture. Required Use the following horizontal financial statements model to show how each event affects the GAAP-based balance sheet and income statement. Indicate whether the event increases (I), decreases (D), or has no effect (NA) on each element of the financial statements. The first transaction has been recorded as an example. Show accumulated depreciation as a decrease in the book value of the appropriate asset account.

Answer 1

Answer:

Weib Manufacturing

Balance Sheet                                             Income Statement

Assets                      = Liabilities + Equity   (Revenue - Expenses =  Profit)

Recognized revenue from cash sale of products:

Cash (I)                     =                   RE (I)       Revenue (I)

Inventory (D)            =                   RE (D)                        Expenses (NA)

Cash (I)                    =                    RE (D)                        Expenses CGS (I)

Cash (D) Inventory (I)

Cash (D)                  =                   RE (D)                        Expenses (I) Wages

Cash (D)                   =                  RE (D)                        Expenses (I) Salaries

Equipment (D)          =                  RE (D)                        Exp (I) Depreciation

Office Furniture (D)  =                 RE (D)                         Exp (I) Depreciation

Explanation:

a) Data:

RE = Retained Earnings

Exp = Expenses

CGS = Cost of Goods Sold

Increases = (I), Decreases  = (D), or has no effect = (NA)

b) The above records show the effect of the accounting equation on the elements of the financial statements of the income statement and the balance sheet.