Question

From the following list of balance sheet accounts, to the best of your ability, categorize them into either Assets, Liabilities, or Owners Equity, and please describe why they belong in their respective balance sheet classification categories: a. Accounts Payable b. Equipment c. Cash d. Common Stock e. Accounts Receivable f. Operating Revenue

Answer 1

a) Accounts Payable = Liability (purchasing on credit for where the payment is made is made at a later date, which becomes a liability and to be shown under Liability side in the balance sheet

b) Equipment = Asset (Equipment is a fixed asset and it is a non recurring expenditure which is used for greater than a year. since it is a capital expenditure to be treated as an asset.

c) Cash = Asset (Cash is a current asset which is the cash available with the bank)

d) Common stock = Owner's equity (It is the capital invested by the owners, so it should be categorized as common stock and shown on the liability side of the balance under Stockholder's equity)

e) Accounts receivable = Asset (Selling the finished goods on credit for which the payment will be received on a later date. so sales revenue to be credited in income statement and its corresponding debit should be accounts receivable as cash is not yet received)

f) Operating revenue : Owners equity .It increases the retained earnings of the company and overall stockholders equity. so shown in the Owner's equity.