Question

What is the ultimate effect of a credit sale (sale on account) on the accounting equation? Assets Liabilities Stockholders Equity a) increase no effect increase b) increase no effect decrease c) decrease decrease no effect d) no effect decrease increase Which of the following is not considered to be a liability? a. Accounts Payable b. Unearned Revenue c. Wages Payable d. Cost of Goods Sold What are the effects on the accounting equation if Patchwork received a bill of $578 for utilities in January that they will pay in February? a. Prepaid utilities (A) +578; Cash (A) -578 b. Cash (A) +578; Utilities Expense (E) +578 c. Prepaid utilities (A) +578; Accounts Payable (L) +578 d. Utilities Expense (E) +578; Accounts Payable (L) +578

Answer 1

Solution:

Question 1:

The answer is a) Assets (Increase) , Liabilities (no effect) , Stockholders Equity ( Increase)

Explanation:

1) With credit sales, two accounts are effected. One is Accounts Receivable and other is Sales Revenue. With Accounts receivables, assets will increase and with sales revenue, net income will increase which leads to increase of stockholders equity.

2) So, Remaining options are incorrect.

Question 2:

The Answer is d. Cost of Goods Sold

Explanation:

1) Cost of goods sold is the manufacturing expense incurred for production the goods. So, it is not a liability

2) Wages and Accounts Payable are liabilities and Unearned Revenue is revenue collected before the services has provided, so it is also a liability.

3) Remaining options are incorrect.

Question 3:

The Answer is d.) Utilities Expense (E) +578; Accounts Payable (L) +578

Explanation:

1) January month utility expense will be paid in February, which means expense incurred and outstanding at the end of the month.

2) So, we have to create expense which is adjusted to equity later, and account payable will arise because of outstanding payment which increase the liability.

3) So, Remaining options are incorrect.