Purchases and Sales of Merchandise, Cash Fices Two Wheeler, a bike shop, opened for business on April 1. It uses a periodic inventory system. The following transactions occurred during the first month of business Required For all accounting equations, if a financial statement item is not affected, select "No Entry" and leave the amount box blank or enter "o" If the effect is negative, use the minus sign. Remember if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. 1. Identify and analyze each of the following transactions of Two Wheeler April 1: Purchased five units from Duhan. Co. for $500 total, with terms 3/10, n/30, FOB destination Activity Operating Account Payable Increase, Purchases Increase Accounts Statement(s) Balance Sheet and Income Statement How does this entry affect the accounting equation? Assets Tows My Wok Phot April 10: Paid for the April 1 purchase Activity Accounts Statement(s) Balance Sheet Stockholders Liabilities Equity Revenues Income Statement Expenses How does this entry affect the accounting equation? YO Incorrect Assets April 15: Sold one unit for $200 cash Adivity Accounts Statement Balance Sheet Stockholders Liabilities . Equity Revenues Income Statement Expenses How does this entry affect the accounting equation? Balance Sheet Ched by Income Assets Stockholders Liabilities Equity Revenues April 1 Purchased ten units from Clinton Inc. for $900 total, with terms 3/10, n/30, Fon destination. Activity Accounts Statement(s) Income Statement Expenses How does this entry affect the accounting equation? Balance Sheet F TO Incorrect Assets April 25: Sold three units for $200 each, cash Activity Accounts Statement(s) Stockholders' Liabilities Equity Revenues Income Statement Expenses Inventory Practice Problems TOW Incorrect April 25: Sold three units for $200 each, cash Activity Accounts Statement(s) allook Fend Oh My Work 1) Determine activity. 1a) Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners Businesses borrow money or raise money from selling of their stock. 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. 3) Balance Sheet accounts Assets Liabilities + Stockholders' Equity. Income Statement accounts: Revenues- Expenses Net Income. (Equations must stay in balance) 4) Cost of goods purchased in periodic inventory system. Purchases is a temporary account used to record acquisitions of merchandise. Recording purchases in a periodic system increase cost of goods sold, which is an expense. Purchases function as an expense indirectly to retained earnings. Purchases is not an asset account 5) Purchase returns & allowances and purchase discounts (contra-purchases account used in a periodic inventory system causing expenses to decrease) are deducted from purchases to arrive at net purchases. The costs incurred for shipping is called transportation-in. These costs are added to net purchases, which increases the cost of goods purchased, and therefore added to the expenses 6) Record receipt of cash (increase) for sales revenue (increase). How does this entry affect the accounting equation? Assets Balance Sheet Stockholders' Liabilities Equity Revenues Income Statement Expenses Inventory Practice Problems April 28 Paid for the April 18 purchase Activity Accounts Statement(s) ebook CheckMy 1) Determine activity 3a) Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaving creditors. This also includes transactions with the company's owners Businesses borrow money or raise money from selling of their stock. 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases 3) Balance Sheet accounts: Assets Liabilities + Stockholders' Equity Income Statement accounts: Revenues Expenses Net Income. (Equations must stay in balance) 4) Cost of goods purchased in periodic inventory system. Purchases is a temporary account used to record acquisitions of merchandise. Recording purchases in a periodic system increase cost of goods sold, which is an expense, Purchases function as an expense indirectly to retained earnings, Purchases is not an asset account. 5) Purchase returns & allowances and purchase discounts (contra-purchases account used in a periodic inventory system causing expenses to decrease) are deducted from purchases to arrive at net purchases. The costs incurred for shipping is called transportation-in. These costs are added to net purchases, which increases the cost of goods purchased, and therefore added to the expenses 6) Recond payment of cash (decrease) reducing accounts payable (liability) and recording purchase discount (increase). Discount is 3% if paid within ten days How does this entry affect the accounting equation? Assets Balance Sheet Stockholders Liabilities Equity Revenues Income Statement Expenses 2. Determine net income for the month of April. Two Wheeler incurred and paid $100 for rent and $50 for miscellaneous expenses during April. Ending Inventory is $967, (Ignore income taxes) 3. Assuming that these are the only transactions during April (including rent and evscellaneous expenses), compute net cash flow from operating activities. Use the minus sign to indicate cash out flows a decrease in cash or cash payments. 4. Cash outflow during the first month of business is much larger than expenses as shown on the income statement due to