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 $950 on account. Whetzel's cost of the merchandise was $600.AssetsLiabilitiesEquityRevenuesExpensesNet IncomeCash Flow???????
What will be an ideal response?
(I) (N) (I) (I) (I) (I) (N)
Recording the $950 revenue on account increases assets (accounts receivable)by $950 and increases revenue, which increases net income and equity. Recording the $600 cost of the merchandise decreases assets (merchandise inventory) by $600 and increases expenses (cost of goods sold), which decreases net income and equity. The net effect on assets and equity is an increase to each. The transaction does not affect cash flows.
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