Question

Goal: Ch 1. Cash-basis vs. accrual basis financial statements, excluding cash flows (pp. 20-23) 1. Consider how shareholder contributions of $100,000 (to form the corporation) affect the following cash and accrual-basis accounting equations, respectively Assets/Resources Cash Cash-Basis Claims against Resources Contributed Capital + Assets/Resources Cash Inventory Cash Inventory Cash Inventory Accrual-Basis Claims against Resources Liabilities + Shareholders' Equity Liabilities + Contributed Capital Eamed Capital Accounts Payable + Contributed Capital + Revenues Expenses 2. In addition to the previous transaction, assume that the corporation purchases inventory for $10,000 on credit, then immediately sells $8,000 of the inventory to customers for $12,000 cash. How do these transactions affect the cash- and accrual-basis accounting equations? Resources Assets Cash Cash-Basis Claims against Resources Contributed Capital + Earned Capital Contributed Capital + Revenues (+) Expenses Transaction Description Owner contribution Inventory purchase Sale of inventory Totals Accrual Basis Resources Assets Cash Inventory Liabilities Accounts Payable + + Claims against Resources Contributed Capital Contributed Capital + Earned Capital Revenues (+) Expenses Transaction Description Owner contribution Inventory purchase Sale of inventory Totals

Answer 1

Answer 1 Cash-Basis Resources/ Asaets Cash = 100000/= Claims against Resources Contributes Caital + Earned Capital 100000 + Cash Cash Cash Resources/Asaets Inventory Inventory Inventory 100000 Accrual-Basis Claims against Resources = Liabilities Shareholders Equituy = Liabilities + Contributes Caital Earned Capital = |Accounts payable + Contributes Caital Revenue(+) Expenses(-) 100000 + Answer 2 Transaction Discription Owner Contribution Inventory Purchase Sale of inventory Cash-Basis Resources Claims against Resources Assets = Contributes Caital + Earned Capital Cash Contributes Caital + Revenue(+) Expenses(-) 100000 = 100000 + + 12000 + 12000 + Total 112000 100000 + + 12000 Transaction Cash Discription Cash Owner Contribution Inventory Purchase Sale of inventory Accrual-Basis Resources/Asaets Claims against Resources Inventory = Liabilities + Contributes Caital Earned Capital Inventory = Accounts payable + Contributes Caital Revenue(+) Expenses(-) 100000 100000 + 10000 10000 + 12000 -8000/= 0 + 12000 -8000 Total 112000 2000 = 10000+ 100000+ 12000 -8000