QUESTION:

The cash purchase of inventory will reduce earned capital under cash-basis of accounting.

o True

o False

2. In addition to the previous transaction, assume that the corporation purchases inventory for $10,000 on credit, then immcdiatcly sells $8,000 of the inventory lo customers for $12,000 cash. How do these transactions affect the cash- and accrual-basis accounling cquations? Resources Assets Cash +$ 100,000 Transaction Description Owner contribution Inventory purchase Sale of inventory Cash-Basis Claims against Resources Contributed Capital Earned Capital Contributed Capital Revenues (+) Expenses (-) +$ 100.000 - $ 12.000 S 12.000 Totals $112.000 = $ 100,000 S 12,000 Accrual-Basis + + Liabilitics Accounts Payable Claims against Resources Contributed Capital Contributed Capital +$100.000 Earned Capital Revenues (+) Expenses (-) + Resources Assets Cash Inventory +$100.000 -$10.000 +S 12.000 ($ 8.000) Transaction Description Owner contribution Inventory purchase Sale of inventory +$ 10,000 $ 12.000 $ 8.000 Totals $112.000 S 2.000 $ 10,000 $100,000 $ 4,000 net