Question

Alpha Company's December 31, Year 1 balance sheet showed $1,700 cash, $1,000 common stock, and $700 retained earnings. The company experienced the following event during Year 2.

(1) On March 1, paid $1,200 to purchase insurance coverage for one year beginning immediately.

Based on this information alone,

Answer 1

The purchase of insurance coverage by Alpha Company affects its balance sheet by decreasing cash assets and increasing prepaid expenses, which is an example relevant to business accounting. Understanding the changes in assets, liabilities, and equity is vital in financial accounting.

Step-by-step explanation:

The question presented pertains to the subject of business, specifically business accounting and financial statements. When purchasing insurance coverage for one year beginning immediately for $1,200, Alpha Company would experience an impact on both its balance sheet and its insurance expense. The cash account on the balance sheet would decrease by $1,200, as this amount is paid out, while prepaid insurance, an asset account, would increase by $1,200, as the coverage represents a future economic benefit for the company. Over time, as the insurance coverage period lapses, the prepaid insurance would be expensed, typically on a monthly basis, reducing the asset and increasing insurance expense.

Using the provided information as a reference, Singleton Bank's balance sheet alteration due to a change in business plan implies that understanding the shifts in a bank's assets, liabilities, and equity is crucial in financial accounting within the business field. To analyze such changes and their implications on financial performance and position, accounting principles are applied.