Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter dollar amounts. (Note that "Not Affected" means that the event does not affect that element of the financial statements or the event causes an increase in that element that is offset by a decrease in the same element.)Increase = IDecrease = DNot Affected = NAWetzel Co. sold merchandise to a customer for $950 on account. Wetzel's cost of the merchandise was $600. (Consider the effects of both parts of this event.) AssetsLiabilitiesStk. EquityRevenuesExpensesNet IncomeStmt of Cash Flows???????
What will be an ideal response?
(I) (NA) (I) (I) (I) (I) (NA)
Recording the sale increases assets (accounts receivable) and increases stockholders' equity (retained earnings) by $950. Sales revenue and net income increase by the same amount. Recording the cost of the merchandise sold decreases assets (merchandise inventory) and decreases stockholders' equity (retained earnings) by $600. The expense (cost of goods sold) increases and net income decreases by that same amount. The net effect on assets and stockholders' equity is an increase to each of $350 (or $950 ? $600). The transaction does not affect the statement of cash flows.
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