Elements And Cash Flow Classification Of The Financial Statements

759 Words Sep 23rd, 2016 4 Pages
Question 2

Elements and cash flow classifications of the financial statements

1. Cash paid into the business by Jay to begin operations
In the balance sheet, this transaction will be shown as the first investment put into the business by the business owner. The elements affected in this transaction will include:
Assets: Increase in Cash
Equity: Increase in Capital
The statement of cash flow will record this transaction under financing activities and shown as cash inflows for the business

2. Racks purchased to display merchandise to customers
The racks purchased to display merchandise are assets for the business and will be shown under equipment. In this transaction, assets will increase, as it is assumed that the equipment was purchased for cash.
This indicates that the transaction would be recorded under investing activities and recorded as cash outflows for the business 3. Building leased for 2 years, with rent payable monthly in advance
There is no indication of a building asset in this transaction. The elements affected includes Asset and Expense. In the balance sheet, the cash increase due to Prepaid Rent would be recorded as an asset, however with each rent paid in advance by the business, it will be recorded as a reduction in cash.
Rent being paid in advance will be recorded as operating activities for the business in the statement of cash flows. Once rent has expired, a reduction will be incurred which is then determined as Rent Expense for the business in…

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