Question

Which of the following shows how paying cash for an insurance policy that protects the company for some future time period affects a company's financial statements?

A. Balance Sheet Income Statement Statement of Cash Flows

Assets = Liab. + Equity Rev. − Exp. = Net Inc.
NA NA NA NA + − −OA

B. Balance Sheet Income Statement Statement of Cash Flows

Assets = Liab. + Equity Rev. − Exp. = Net Inc.
NA NA NA NA NA NA −OA

C. Balance Sheet Income Statement Statement of Cash Flows

Assets = Liab. + Equity Rev. − Exp. = Net Inc.
− NA − NA NA NA −OA

D. Balance Sheet Income Statement Statement of Cash Flows

Assets = Liab. + Equity Rev. − Exp. = Net Inc.
NA NA NA NA NA NA −IA

Answer 1

Paying cash for an insurance policy affects a company's financial statements by decreasing assets, increasing expenses, and impacting net income.

Step-by-step explanation:

The correct answer is option D: Balance Sheet, Income Statement, and Statement of Cash Flows.

Paying cash for an insurance policy affects a company's financial statements by decreasing the company's assets and increasing its expenses. The payment made for the insurance policy is recorded as a decrease in cash on the balance sheet. Additionally, the expense of the insurance policy is recorded on the income statement as a deduction from revenue, resulting in a decrease in net income. This decrease in net income will ultimately impact the company's statement of cash flows.