Account classifications include assets, liabilities, stockholders’ equity, dividends, revenues, and expenses.

Account Classifications Accounts Related Transactions 1. Common stock Sale of common stock to investors. 2. Equipment Salaries payable Service revenue Equipment used for operations. Amounts owed to employees. Sales of services to customers. 3. 4. Utilities expense Supplies Research and 5. Cost of utilities. Purchase of office supplies. Cost of

Required:

For each transaction, indicate whether the related account would be classified in the balance
sheet as

(a) An asset,

(b) A liability,

(d) A revenue or

(e) An expense; or in the statement of stockholders’ equity as

(f) A dividend.

Solutions

Expert Solution

External transactions are the transactions or activities which the business makes with the outside world that will affect the financial position of the business.

Assets are the resources owned by the business which are being used for the purpose of earnings the income for the business by its intended use.

Liabilities are the claims of the outside world against the assets of the business which the business owes to the outside world.

Stockholder’s equity is a claim of the owners (i.e. stockholders of the company) on the company’s assets which is to be paid at the time of winding up of the business.

Dividend is an amount paid to the stockholders of the company out of net income earned for the period as a consideration for investment made in the business.

Revenues are the amount earned by the business during the period of time by providing the services rendered and by the sale of goods.

Expenses are the amount incurred for earning the revenues as aforesaid during the same period of time.

The terms have been matched as under:

	Accounts	Related transaction	Account Classification
1	Common stock	Sale of common stock to investors	Stockholders\'s Equity
2	Equipment	Equipment used for operation	Asset
3	Salaries Payable	Amount owed to employees	Liability
4	Service revenue	Sales of service to customers	Revenue
5	Utilities expense	Cost of utilities	Expense
6	Supplies	Purchase of office supplies	Asset
7	Research and development cost	Cost of research and development	Expense
8	Land	Property used for operations	Asset
9	Income tax payable	Amounts owed to IRS for taxes	Liability
10	Interest payable	Amount of interest owed on borrowing.	Liability

To conclude, it must be stated that each transaction will be having a two way effect on the external transaction.

Junaid answered 1 year ago

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