Question

During the current year, Mainzel Corp. sold inventory costing 100,000 for 220,000. The company's accounts payable balance increased by 10,000, and the inventory account balance increased by 6,000. The journal entry to derive cash paid to vendors would include debits to (Select all that apply.)

1) Accounts Payable
2) Inventory
3) Cash
4) Sales Revenue

Answer 1

The cash paid to vendors by Mainzel Corp. would involve debits to Accounts Payable and Inventory, excluding Sales Revenue and Cash. It would be calculated based on the cost of inventory sold, changes in inventory and accounts payable to get the cash paid amount.

Step-by-step explanation:

A student is asking about determining the cash paid to vendors given a set of financial information for Mainzel Corp. The correct entries to derive the cash paid to vendors in this scenario are debits to both Accounts Payable and Inventory. The increase in Accounts Payable by $10,000 suggests additional credit was received from vendors, while the Inventory account increase of $6,000 implies additional inventory was purchased. To compute the cash paid, you would start with the cost of inventory sold ($100,000), add the increase in inventory ($6,000) to reflect the total inventory acquired, and then subtract the increase in accounts payable ($10,000), because this amount was not paid in cash yet. Therefore, the cash paid to vendors would be $96,000 (100,000 + 6,000 - 10,000).

To put this in the perspective of a self-check question: If a firm had sales revenue of $1 million last year, and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the firm's accounting profit would be $50,000, which is the sales revenue minus these expenses.