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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Brief Exercise 2-2? Events and Transactions

Several events are listed below.

  1. Paid $30,000 for land.
  2. Purchased office supplies for cash.
  3. Perfumed consulting services for a client with the amount to be collected in 30 days.
  4. Signed a contract to perform consulting services over the next 6 months.

Required:

For each of the events, identify which ones qualify for recognition in the financial statements. If an event does not qualify for recognition, explain why.

To determine

Introduction:

A typical financial statement consists of income statement, balance sheet and statement of cash flows. In order to recognize an event in the financial statement, the event must have an influence on the elements of the financial statement like revenue, expense, assets, liabilities and stockholder’s equity.

Identify each event to be recognized in the financial statement. If an event does not qualify for recognition, explain why.

Explanation

A. The event results in an outflow of cash and increase in the assets (land) of the business enterprise. It influences the elements of the financial statement, so it is qualify for recognition.

B. Purchasing office supplies for cash affects the accounting equation. Hence it is qualified to be recognized in the financial statement.

C. Although the business enterprise hasn’t been paid for the services performed for the client, it is qualified fo...

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