Elements And Cash Flow Classifications Of Financial Analysis

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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
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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 the income statement.

4. Streetwear items purchased from a manufacturer
In the balance sheet, Streetwear items bought for the business are recorded as Inventory, which indicates that the element for this transaction are assets. The transaction would be recorded under operating activities as cash outflow due to assumption that the items were purchased in cash

5. Amount owing to the manufacturer for merchandise purchased
In the balance sheet, this transaction will be recorded as a liability (account payable). Once the business is able to pay the amount owed to the manufacturer, the cash flow statement will record this transaction under operating activities and as cash
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7. Cash withdrawn by Jay for personal use.
In this transaction, drawings will reduce cash and equity, which indicates that the elements affected are assets and equity. The statement of cash flows will record this transaction under financing activities and as cash outflows for the business

8. Wages paid to casual employee
In this transaction, wages expense will reduce cash balance, which indicates that the element affected is assets. Wages expense will be recorded in the income statement and only appears in the balance sheet once deducting the amount in profit, which additionally also reduces equity.
This transaction will be recorded under operating activities and cash outflows in the cash flows statement.

9. Amount borrowed long-term from the bank
In the balance sheet, a long-term loan is considered as a liability incurred onto the business. However, the resulting cash injection into the business is recorded as an asset due to the increase in cash. This indicates that the elements affected for this transaction includes assets and liability.
In the statement of cash flows, the cash received from the loan will be recorded under financing activities and as cash inflows for the business

10. Cash sales of merchandise to

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