Prove the equality of the debit and credit amounts after posting. Computer Corporation is starting its computer programming business and has sold stock of $15,000. Identify how the accounting equation will be affected. Describe how the paid-for utilities used in the business affects the three elements of the accounting equation. Learn about the accounting equation.

What should be the result of purchase of supplies on account?

The purchase of supplies on account should result in: (a) a debit to Supplies Expense and a credit to Cash.

That being said, there is no hard rule about when an item should be considered immaterial, so you have to use your judgement to determine that. Items that account for less than five percent of your total assets can still be considered material. Will cause a reduction in the corporation’s retained earnings, which in turn reduces the corporation’s stockholders’ equity. However, this will not reduce the corporation’s net income. The balances of two asset accounts have changed.

Chapter 1…

Under basis accounting, expenses are recorded when cash is paid. Take the example of a cash purchase for a client lunch. Cash is going to go down and an expense goes up. Meals and entertainment expense account is increased with a debit and the cash account is decreased with a credit. The income statement shows whether your company made a profit or loss and is also called the profit or loss statement and the revenue and expense statement. You close expenses — including the supplies expense account — and revenues into the income statement. Expenses are money you spend to run your business.

  • Increases assets and liabilities.
  • Business owners love Patriot’s accounting software.
  • The fundamental accounting equation is the foundation of the double-entry accounting system.
  • In the journal entry, Dividends has a debit balance of $100.
  • As a result total assets did not change, and liabilities and equity accounts were unaffected, as shown in the following illustration.
  • We will increase the expense account Utility Expense and decrease the asset Cash.

X bills Client Q in May for the agreed upon amount of $5,000. The sales invoice shows that the amount will be due in June. Owner’s (Stockholders’) Equity is not involved in this transaction. Owner’s (Stockholders’) Equity will be reduced when the supplies are used. ™ Copyright © 2023.


Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transaction. During July, its first period of operations, Aju Inc. sold ordinary shares for W1,060,000,000, earned net income of W130,000,000, and paid dividends of W27,000,000.

Does purchasing supplies affect income statement?

Like any other expense, a company must account for its supply costs on the income statement. A basic multiple-step income statement is set up to separate operating and non-operating expenses. The operating expense section is further divided between selling and administrative costs.

The Unearned account would be used to recognize this liability. This is a liability the company did not have before, thus increasing this account. Liabilities increase on the credit side; thus, Unearned Revenue will recognize the $4,000 on the credit side. On January 30, 2019, purchases supplies on account for $500, payment due within three months. The company has yet to provide the service. According to the revenue recognition principle, the company cannot recognize that revenue until it provides the service.