Question

Identify how each of the following separate transactions 1 through 10 affects financial statements. For increases, place a "+" and the dollar amount in the column or columns. For decreases, place a "−" and the dollar amount in the column or columns. Some cells may contain both an increase (+) and a decrease (−) along with the dollar amounts. The first transaction is completed as an example.

Required:
a. For the balance sheet, identify how each transaction affects total assets, total liabilities, and total equity. For the income statement, identify how each transaction affects net income.
b. For the statement of cash flows, identify how each transaction affects cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.Transaction
1. Owner invests $900 cash in business in exchange for stock
2. Receives $700 cash for services provided
3. Pays $500 cash for employee wages
4. Incurs $100 legal costs on credit
5. Purchases $200 of supplies on credit
6. Buys equipment for $300 cash
7. Pays $200 on accounts payable
8. Provides $400 services on credit
9. Pays $50 cash for dividends
10. Collects $400 cash on accounts receivable

Answer 1

1. +$900 share capital on balance sheet, Equity

2. +$700 cash in balance sheet, Current Assets

3. -$500 Expense in Income Statement

4. +$100 Legal liability in Balance Sheet, Current Liability

5. +$200 Accounts Payable in Balance Sheet, Current Liability

6. +$300 Equipment and Building in Balance Sheet, Non Current Assets

7. -$200 Accounts Payable in Balance Sheet, Current Liability

8. +$400 Accounts Receivable in Balance Sheet, Current Assets

9. -$50 Retained Earnings in Balance Sheet, Equity

10. +$400 Cash in Balance Sheet, Current Assets, and -$400 Accounts Receivable in Balance Sheet, Current Assets

Step-by-step explanation:

The given transactions impacts the financial statements of the business. The effect is shown for the income statement and balance sheet. The purchase of equipment on credit does not have any impact on Income Statement since Income statement reflects only actual exchange of cash. It reflects inflow and outflow of cash.