Consider the effects of the independent transactions, a through h, on a company's balance sheet, income statement, and statement of cash flows. complete the table below to explain the effects and financial statement linkages. refer to exhibit 2.10 as a guide for the linkages. a. wages are earned by employees but not yet paid. b. inventory is purchased on credit. c. inventory purchased in transactions b is sold on credit (and for more than its cost). d. collected cash from transaction c. e. equipment is acquired for cash. f. paid cash for inventory purchased in transaction b. g. paid cash toward a note payable that came due. h. paid cash for interest on borrowings.

Explanation:

A. The Balance of Income Statement I mean Net Profit will decrease because of increase in expenses and the balance of Current Liabilities in Balance Sheet will increase because it will become salaries payable and  there will be no effect on statement of cash flows.

B. This will affect gross Profit and Net Profit negatively means bot will decrease and cost of goods sold will increase, in Balance sheet it will increase current assets as inventory is asset and it will also increase current liabilities and it is purchased on Credit. and there will be not affect on statement of cash flows.

C. This will increase sales and hence Net Profit in Income Statement. The balance on Balance sheet will will increase because it is sold so accounts receivable will increase which is current asset and also as inventory is sold so inventory will decrease but it will decrease by less amount because we record inventory on cost and we have sold it for more than its cost so the value of current assets will increase as the amount of accounts receivable will be greater than the decrease of the amount of inventory. there will be no change in statement of cash flows.

D. There will be no affect on Income Statement. There willbe no change in the balance of balance sheet because the accounts receivable will decrease by the same amount as cash will increase. Balance on statement of Cash Flows will increase as the company have received cash so it will increase its cash inflows.

E. There will be no change in the Balance of Income Statement as acquisition is related to balance sheet. This will not change the overall balance of balance sheet but it will decrease the balance of current assets as cash is paid for acquisition and it will increase the balance of fixed assets as equipment is bought. But the balance of total assets will remain same.  The balance of statement of cash flows will decrease because cash is paid so there is cash outflow.

F. This will not affect Income Statement. this will decrease the balance of current assets as cash is paid so it is a current asset and also it will decrease the balance of current liabilities as it was purchased on credit so accounts payable will decrease. also this will decrease the balance of statement of cash flows as it is a cash outflow.

G. This will not affect Income Statement. this will decrease the balance of balance sheet. as cash is paid so current assets will decrease and as notes payable are liabilities so it will also decrease because it has been paid off. there will be a decrease in the balance of statement of cash flows because it is a cash outflow.

H. The balance of Income statement will decrease means net profit will decrease as Interest is an expense. The Balance of Balance sheet will decrease because cash is paid and it is current asset. it will decrease the balance of statement of  cash flows because it is a cash outflow.

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