Question

Applying Financial Statement Linkages to Understand Transactions

Consider the effects of the independent transactions, a through h, on a company's balance sheet, income statement, and statement of cash flows. Complete the table below to explain the effects and financial statement linkages. Refer to Exhibit 2.10 as a guide for the linkages.

a. Wages are earned by employees but not yet paid.

b. Inventory is purchased on credit.

c. Inventory purchased in transaction b is sold on credit (and for more than its cost).

d. Collected cash from transaction c.

e. Equipment is acquired for cash.

f. Paid cash for inventory purchased in transaction b.

g. Paid cash toward a note payable that came due.

h. Paid cash for interest on borrowings.

To indicate the account increases (+), enter " 1^{n} in the answer box.

To indicate the account decreases (-), enter " 2^{\prime \prime} in the answer box.

If the account is not impacted by the transaction, leave the answer box blank.

Answer 1

				a)	b)	c)	d)	e)	f)	g)	h)
Balance sheet
Cash							1	2	2	2	2
Non Cash assets					1		2	1
Total liabilities				1	1				2	2
Contributed capital
Retained earnings				2		1					2
Other equity
Statement of cash flows
Operating cash flow							1		2
Investing cash flow								2
Financing cash flow										2	2
Income statement
Revenues						1
Expenses				1		1					1
Net income				2		1					2
Statement of stockholders' equity
Contributed capital
Retained earnings				2		1

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