Question

• Part 4: Choose a service company and describe two business examples for each account classification (asset, liability, & owners’ equity) from a real-life service company. (200 words or more)
• Part 4: Provide an example of the journal entries for accounts payable (Provide the original adjusting entry and the subsequent cash entry).(200 words or more)

In regards to any publicly-traded company in America.

Answer 1

Answer:-

A balance sheet of a company represents the financial position in the market, which also helps the investors to know whether it would be beneficial to invest in the company or not. Apart from that, a balance sheet also depicts the number of assets and various kinds of liabilities. In the upcoming example, I am going to elaborate the relationship between Assets, Liabilities, and Equity of a company.

i.e. Assets = Liabilities + Equity

Balance Sheet Example

Below is an example of Amazon’s 2017 balance sheet taken from CFI’s Amazon Case Study Course. As you will see, it starts with current assets, then non-current assets and total assets. Below that is liabilities and stockholders’ equity which includes current liabilities, non-current liabilities, and finally shareholders’ equity.

AMAZON.COM, INC. CONSOLIDATED BALANCE SHEETS (in millions, except per share data) December 31, 2017 2016 ASSETS $ Current assets: Cash and cash equivalents Marketable securities Inventories Accounts receivable, net and other Total current assets Property and equipment, net Goodwill 19,334 6,647 11,461 8,339 45,781 29,114 3,784 4,723 83,402 20,522 10,464 16,047 13,164 60,197 48,866 13,350 8,897 131,310 Other assets $ $ Total assets LIABILITIES AND STOCKHOLDERS' EQUITY 25,309 $ 13,739 4,768 43,816 7,694 12,607 34,616 18,170 5,097 57,883 24,743 20,975 Current liabilities: Accounts payable Accrued expenses and other Unearned revenue Total current liabilities Long-term debt Other long-term liabilities Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock, $0.01 par value: Authorized shares — 500 Issued and outstanding shares — none Common stock, $0.01 par value: Authorized shares — 5,000 Issued shares — 500 and 507 Outstanding shares — 477 and 484 Treasury stock, at cost Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 5 (1,837) 17,186 (985) 4,916 19,285 83,402 $ (1,837) 21,389 (484) 8,636 27,709 131,310 $ See accompanying notes to consolidated financial statements.

Example: amazon.com’s balance sheet

View Amazon’s investor relations website to view the full balance sheet and annual report.

In the above-mentioned balance sheet of Amazon.com Assets for the year, 2016 are $ 83402, whereas Liabilities are of $ 64117 and Total Equity are of $ 19285

Hence, Assets = Liabilities + Total Equity

83402= 64117+19285

= $83402= $83402

Similary, in the year 2017

Total Assets= $131310

Liabilities= $103601

Total Equity= $27709

$131310 = $ 103601+ $ 27709

_= 131310 = 131310

Hence proved that assets are always equal to Liabilities and total equity of a firm.

Part 4 Answer:-Whenever a firm purchases goods or receive services on credit then there is a need to create an account by the name of Bills Payable or Accounts Payable. Such an Amount has to be paid to the creditor by the time to remove the liability.

When expenses are incurred or services are purchased on account:

If some professional services (such as market and legal services etc.) are acquired or expenses are incurred and the payment for them is to be made in future, the accounts payable liability arises which is recorded by making the following journal entry:

Relevant expenses A/c [Dr.]
To Accounts payable A/c [Cr.]

on the other hand when cash is paid to the creditor for the previously acquired service or purchased goods, then following journal entry is recorded:-

Accounts Payable A/c (Dr.)

To Cash A/c (Cr.)

Below is given an example of Bills payable account along with journal entries.

The Chicago Corporation engaged in the following transactions during the month of January.

• Jan 01: Purchased $80,000 of inventory, terms 2/10, n/30, FOB shipping point. Paid freight costs of $600.
• Jan. 02: Returned damaged goods to the supplier and received a credit of $12,000.
• Jan. 09: Paid cash to supplier for inventory purchased on January 1.

Date	Particulars	Debit $	Credit $
Jan.01	Purchases A/c	80,000
	To Accounts Payable A/c		80,000
	(Purchased Inventory on credit)
Jan. 01	Freight-in expense A/c	600
	To Cash A/c		600
	(Paid Cash For Freight inward)
Jan.02	Accounts Payable A/c	12000	,
	To Purchase Returns & Allowances		12000
	(Returned damaged goods to the supplier)
Jan.09	Accounts Payable A/c	68000
	To Cash A/c		66,640
	To Purchases Discounts A/c		1,360
	(Paid cash for inventory purchased on Jan.01)