Question 1: The question says purchased gasoline for $100 on account. I assume it will go to accounts payable and expenses but not in supplies. And as i pay it later in cash then i should count it in my income statement's expenses. Am i right?
Answer: Yes, this would increase both liabilities and expenses. And it would be shown in the income statement because it is an expense, not because they paid for it! Even if you pay for an expense later, you need to show it in the income statement. Paying or not paying for an expense would have different consequences in terms of cash flows.
Question 2: Part-1: In June 2, purchased a Van for $12000, by paying $2000 cash and signing a N/P for the remaining balance. Then in June 23, made a cash payment of 500 on N/P. Paying this 500 cash payment decreases N/P. So where i can write this $500 cash payment in Cash flow statement... (operating/investing activities?) and what will be the title of this transaction (decreasing N/P or delivery van)?
Part-2: Similarly in June 17, purchase of gasoline for 150 on account, then in June 29, paid for the gasoline purpose. This transaction also decreases A/P. So in cash flow statement where i can write this transaction... in which section and under what title (decreasing A/P or expense)?
Answer: Part-1: Under investing activities, 'purchase of van' would show a negative $2,500 as total of that much cash went out from the business to purchase it.
Part-2: It would be included in cash payments for expenses under operating activities section.
Answer: Yes, this would increase both liabilities and expenses. And it would be shown in the income statement because it is an expense, not because they paid for it! Even if you pay for an expense later, you need to show it in the income statement. Paying or not paying for an expense would have different consequences in terms of cash flows.
Question 2: Part-1: In June 2, purchased a Van for $12000, by paying $2000 cash and signing a N/P for the remaining balance. Then in June 23, made a cash payment of 500 on N/P. Paying this 500 cash payment decreases N/P. So where i can write this $500 cash payment in Cash flow statement... (operating/investing activities?) and what will be the title of this transaction (decreasing N/P or delivery van)?
Part-2: Similarly in June 17, purchase of gasoline for 150 on account, then in June 29, paid for the gasoline purpose. This transaction also decreases A/P. So in cash flow statement where i can write this transaction... in which section and under what title (decreasing A/P or expense)?
Answer: Part-1: Under investing activities, 'purchase of van' would show a negative $2,500 as total of that much cash went out from the business to purchase it.
Part-2: It would be included in cash payments for expenses under operating activities section.
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