Question

illustrate the effects on the accounts and financial statements of recording the following transcations. If no account or activity is affected, select "no effect from the dropdown and leave the corresponding number entry box blank. a. sold merchandise for cash, $107500. The cost of the goods sold was $53,750

Answer 1

Answer:

Sale of Merchandise for Cash

Revenue (Shareholders Equity) = Increase $107500

Cash (Asset) = Increase $107500

Liabilities = No Effect

Cost of Goods Sold

Shareholders Equity = Decrease $ 53750

Inventory (Asset) = Decrease $53750

Liabilities = No Effect

Explanation:

Sale of Merchandise for Cash

Recognition of  Revenue increases Profit in Income Statement and consequently increases shareholders equity.

Assets of Cash are increasing to depict inflow of economic benefits

Cost of Goods Sold

Cost of Goods sold represent outflow of economic benefits

Assets of Inventory are decreasing