Use the following information to answer the questions below: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.Increase = IDecrease = DNo Effect = NStan's Surf Shack purchased 5 surfboards for $200 each. Later it purchased 2 more surfboards for $250 each. Stan's uses the perpetual inventory system. Assume that 6 surfboards were sold during the period for $350 cash each.How would the sale affect the financial statements if Stan's Surf Shack uses the FIFO inventory cost flow method?AssetsLiabilitiesEquityRevenuesExpensesNetIncomeCash Flow? ?????

Question

What will be an ideal response?

Answer 1

(I) (N) (I) (I) (I) (I) (I)
The cash sale will increase assets (cash) and increase revenue, which will increase net income and equity, by the selling price. It will also decrease assets (inventory) and increase expenses (cost of goods sold), which will decrease net income and equity, by the cost of the first book purchased. It will be reported as a cash inflow from operating activities on the statement of cash flows.