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 amounts. Assume that Frank Company uses a perpetual inventory system.Increase = IDecrease = DNo Effect = NWhetzel Co. sold merchandise to a customer for $1,400 cash. The merchandise had originally cost Whetzel $850.AssetsLiabilitiesEquityRevenuesExpensesNet IncomeCash Flow???????
What will be an ideal response?
(I) (N) (I) (I) (I) (I) (I)
The cash sale of merchandise increases assets (cash) and increases revenue, which increases net income and equity, all by $1400. It also decreases assets (merchandise inventory) and increases expenses (cost of goods sold), which decreases net income and equity, all by $850. The net effect is an increase to assets and equity of $550. It is reported as a $1,400 cash inflow from operating activities.
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