Question

Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200. Which of the following shows how the recognition of the cost of goods sold will affect the Company's financial statement? (Ignore the effects of the associated revenue recognition.) Balance Sheet Income Statement Assets. Liab. +1 Equity | NA Rev. . Exp. NA Statement of Cash Flows Net Inc. Balance Sheet Income Statement Statement of Cash Flows NA Assets ·Liat. : +1 Equity Exp.Net Inc. NA NA Balance Sheet AssetsLiab. Equity Income Statement Rev.Exp Net Inc. Cash Flows + OA Balance Sheet Income Statement Assets iab Equity ExpNet Inc. Cash Flows eBook & Resources 8. MacBook 80 2 3 4 6

Answer 1

Answer

• Recognistion of Cost of Goods Sold will basically have two effects:
  #1 Cost of Goods Sold is an Expense, so Expenses will increase.
  #2 Inventory balance decreases by the amount of cost of goods that was sold.
• Hence,
  #1 Expense increase = Net Income decrease
  #2 Inventory decrease = Asset decrease
• Correct Answer = Option #4