Accountants need to record some things that happen that are not transactions with other companies.

For each of the items listed below, indicate how you think they should affect the accounting equation. For example, assume that a company had paid its rent before the month started, and recorded the asset “prepaid rent.” Then a month goes by, and the rent is no longer prepaid. The effect of a month going by is that the asset is now decreased to zero. An expense has been incurred. The result of this expense is that equity is also decreased.

A. The company owns a machine that it depreciates over five years. What is the effect of another year of time going by?

B. The company had recorded prepaid insurance because it bought six months of car insurance at one time. Now one month has passed.

C. The company had recorded an asset for office supplies, when it spent

$10,000 to buy a large supply of them. It does not bother to account for them as they are used. At the end of the year, it looks at the supplies, and realizes that only $2,000 worth of supplies are left. However, its accounting records still show a balance of $10,000.

D. The company only records salaries when it pays them. Pay day is every Friday. This year ends on Wednesday, and the company wants to recognize that employees have earned three days’ pay even though they have not received the cash.

E. The company did services for a client, and has earned $20,000.

F. The company believes that the income tax for this year is $30,000, which it expects to pay early next year.