Question

Instructions:

You are considering how the following transactiions or statements will affect your financial statements.

Indicate how it will affect the income statement, budget and/or the balance sheet.

Example 1: You own stock worth $74,000 This would affect the balance sheet. It would be listed on the balance sheet as an investment asset and be recorded in the amount of $74,000

Example 2: You bought a car worth $5,000 last year. This would get listed as an expense on the income and expense statement in the amount of $5,000 since it was bought recently. It would also be listed as a personal asset on the balance sheet in the amount of $5,000.

1. You estimate your utility bill each month will be about $120.

2. Your car insurance premium is $900 every six months.

3. You bought a watch last week on with your credit card. The watch cost $500 and

you have not paid your credit card yet.

4. You will be buying a computer next month that will cost $2,200

5. Your car you have had for several years is worth $19,000 today. You originally

paid $40,000 for the car.

6. Your checking account balance is $5,000

Answer 1

1. Payment of utility bills is an operating expense, & hence all such expenses incurred in a financial year would be a part of the 'Statement of Profit & Loss'. If any bill/s for the financial year remain unpaid, these would be recorded in the CURRENT LIABILITIES section of the balance sheet as 'Accrued expenses'.

2. Payment of insurance is an operating expense, & hence if attributable to a financial year would be a part of the 'Statement of Profit & Loss'. If any premium for the financial year remains unpaid, it would be recorded in the CURRENT LIABILITIES section of the balance sheet as 'Accrued expense'.

3. The watch ($500) would get listed as an asset on the balance sheet. Since no payment has been made for the asset yet, but is billed to your credit card, it should be recorded in the CURRENT LIABILITIES section of the balance sheet as 'Accrued expense'.

4. The cost of the computer ($2200) would get listed as an asset on the balance sheet. The capital expenditure incurred should form part of the cash flow statement & be recorded under 'Cash flow from investing activities'.

5. The car is an asset on the balance sheet. Its value today as per the balance sheet would be $40,000 less the accumulated depreciation (which may or may not equal $19,000). If you wish to assign the value of $19,000 to the car on the balance sheet, then you would need to make appropriate adjustments through a revaluation account.

6. Checking account balance of $5,000 is recorded as a current asset on the balance sheet.