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The Affect of Transactions on Cash Flow; Adjusting Entries

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1. Identify impact of transactions on cash and net income.
Transactions that affect earnings do not necessarily affect cash.
Identify the effect, if any, that each of the following transactions would have upon cash and net income. The first transaction has been completed as an example.
Cash Net Income
(a) Purchased $100 of supplies for cash. -$100 $ 0
(b) Recorded an adjusting entry to record use of $30 of the above supplies $ 0 $(30)
(c) Made sales of $1,300, all on account. $ 0 $1,300
(d) Received $800 from customers in payment of their ...

Solution Summary

This solution discusses two subjects. First, it illustrates the effects of certain transactions on a firm's cash account and net income. It then identifies the major types of adjusting entries and explains why they are needed.