Question

Question #6: For each of the following independent cases:

a) Record the transaction using the accounting equation. Be specific about account names & $ amounts.

b) Indicate the effect of each transaction on the Statement of Cash Flow (SCF). Specify which section(s) of the SCF the transaction affects and in what direction. If there is no effect on the SCF, write “no effect”.

Recognized $41,000 of salaries & wages expenses. Paid $34,000 cash. The remainder is to be paid in the following quarter.

Accounting Equation

Statement of Cash Flow

Answer 1

Answer a)

Accouting equation is Assets = Liabilities + Shareholder's equity

1. Recognized $41,000 of salaries & wages expenses : Here, two accounts will be affected by $41000, salary account will be debited by 41000 & outstanding salary account will be credited by 41000. Therefore, Liability will increase by $41000 as this amount is due but has not been paid to employees yet. Assets will not face any change.

2. Paid $34,000 cash : Liability will decrease by $34000, similarly as cash as been paid, assets will also decrease by $34000. Outstanding salary account wil be debited by 34000 and cash account will be credited by 34000.

3. The remainder is to be paid in the following quarter : There will be a further decrease in assets and liability by $7000 respectively.

Answer b)

1. Recognized $41,000 of salaries & wages expenses : No effect on Cash flow statement

2. Paid $34,000 cash : The amount will fall under header 'Cash flow from operating activities'. $34000 will be decuducted as salary payable. The operating activities on the CFS include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from a company's products or services.

3. The remainder is to be paid in the following quarter : No effect on Cash flow statement currently. $7000 will fall under operating activites when the payment will be made.