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Company XYZ entered in the following transactions during the month of June: (1) purchased inventory on account for $165,000 (assume XYZ uses a perpetual inventory system); (2) paid $40,000 in salaries to employees for work performed during the month; (3) sold merchandise that cost $120,000 to credit customers for $200,000; (4) collected $180,000 in cash from credit customers; (5) paid suppliers of inventory $145,000
Company XYZ entered in the following transactions during the month of June:
(1) purchased inventory on account for $165,000 (assume XYZ uses a perpetual inventory system);
(2) paid $40,000 in salaries to employees for work performed during the month;
(3) sold merchandise that cost $120,000 to credit customers for $200,000;
(4) collected $180,000 in cash from credit customers;
(5) paid suppliers of inventory $145,000.
Analyze each transaction and show the effect of each on the accounting equation for a corporation.
Expert Solution
Analyze each transaction and show the effect of each on the accounting equation for a corporation as follows: -
| Balance Sheet Equation (Fundamental Accounting Equation) | ||||
|---|---|---|---|---|
| Serial Number | Particulars | Asset = | Equity + | Liability |
| 1. | Inventory Purchase on Account | Increase in Inventory by $165,000 | NA | Increases by $165,000 |
| 2. | Salary Payment | Decrease in cash by $40,000 | Decrease by $40,000 | NA |
| 3. | Sales | Decrease in inventory by $120,000, increase in AR by $200,000 | Increase in retained earnings by $80,000 | |
| 4. | Cash collected from customer | Decreases in AR, Increase in Cash by $180,000 | NA | NA |
| 5. | Paid to Supplier | Decrease in cash by $145,000 | Increase in retained earnings | Decrease in AP by $145,000 |
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