A company purchased supplies for cash, which will be consumed during future months. Which of the following correctly describes the impact of the supplies purchase on the financial statements (in the initial month of purchase)?

Question

BlackTom AI · Accepted Answer

The scenario presents a purchase of supplies for cash that will be used in future periods. This transaction affects two balance sheet accounts, both of which are assets, with no immediate impact on liabilities or equity beyond asset reallocation.
Option 1: 'Total assets will decrease.' This would only be true if cash was paid without receiving another asset or if liabilities increased. Here, one asset (cash) is exchanged for another asset (supplies), so total assets do not change in amount.
Option 2: 'Total assets will remain unchanged.' Correct. The cash payment reduces cash (asset) and increases supplies (asset) by the same amount, leaving total assets unchanged in the month of purchase.
Option 3: 'Operating income will decrease.' Operating income reflects revenues minus operating expenses for the period. A purchase of supplies for cash is a balance sheet transaction that does not create an expense in the income statement until the supplies are used (matching principle). Therefore, operating income is not affected at the time of purchase.
Option 4: 'Operating expenses will decrease.' This would imply the period’s expenses fell due to the purchase, which is incorrect. Initially, the transaction does not record an expense; it records an asset swap. Only when the supplies are consumed would an expense be recognized, potentially increasing operating expenses in the future, not decreasing them.

ACCT 2051 (070) Midterm Exam #1

A company purchased supplies for cash, which will be consumed during future months. Which of the following correctly describes the impact of the supplies purchase on the financial statements (in the initial month of purchase)?

查看解析

登录即可查看完整答案

类似问题

If a company pays a 12-month insurance premium for $2,400 on 1 June 2021, then at 30 June 2021 the accounts will show:

A prepaid expense is

How will Prepaid Rent Expense be classified on a Balance Sheet?

If a company pays a 12-month insurance premium for $2,400 on 1 June 2021, then at 30 June 2021 the accounts will show:

Prepaid expenses must always be categorises as current assets.

Which of the following is not an expense?

Brad operates a storage business on the accrual method. On July 1, Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse. The rent and insurance cover the next 12 months. What is Brad's deduction for the rent and insurance?

' A prepaid Expense such as prepaid Rent, prepaid Insurance is an expense. ' True or False ?

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单