Effect of accounting events on the income statement and statement of cash flows


Explain how each of the following events and the related adjusting entry will affect the amount of net income and the amount of cash flow from operating activities reported on the year-end financial statements. Identify the direction of change (increase, decrease, or NA) and the amount of the change. Organize your answers according to the following table. The first event is recorded as an example. If an event does not have a related adjusting entry, record only the effects of the event. All adjustments are made on December 31.

a. Acquired $50,000 cash from the issue of common stock.

 b. Paid $4,800 cash on October 1 to purchase a one-year insurance policy.

 c. Collected $18,000 in advance for services to be performed in the future. The contract called for services to start on September 1 and to continue for one year.

 d. Earned $22,000 of revenue on account. Collected $18,000 cash from accounts receivable.

 e. Sold land that had cost $10,000 for $10,000.

 f. Accrued salaries amounting to $8,000.

g. Provided services for $12,000 cash.

h. Paid cash for other operating expenses of $3,500.

i. Purchased $1,800 of supplies on account. Paid $1,500 cash on accounts payable. The ending balance in the Supplies account, after adjustment, was $600.

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