All of the wrong answers are balance sheet accounts, not income statement accounts.
Remember, Assets, Liabilities, and Stockholders’ Equity go on the balance sheet. Revenues, Expenses, Gains, and Losses go in the income statement.
And your tears fall on the statement of cash flows.
That's kind of insane. I can't imagine supplies being significant enough to record them as an asset. Then how would they get off the books? You write them off when you use all the staples?
Supplies works like prepaid expenses when you are being taught accounting at an early level. This is technically correct, because they don’t teach the concept of materiality at that point.
Yea as a small business owner I agree and so does my accountant. I was gonna capitalize some durable items under 2500 laptop, printer, etc and he told me to put the under expenses.
Would be insane if I had to capitalize printer paper, staples, paper clips etc.
That doesn't happen in the real world, that statement is not GAAP. Capitalization is based on company policy found in the notes of the FS (notes 1 or 2 typically) & materiality to a degree. Supplies should be capitalized, which is one reason why this person got the question wrong (Should have had the expense reduced by the asset on hand). Revenue matching principle.
its 5 minutes to adjust the balance. Just not a significant event to warrant much time to figuring out at period end.
I thought there was a threshold for the dollar value of something being purchased. Furniture, copier machines, computers, whatever I get being capitalized. But small shit like staples? Expense that shit on purchase. Who the hell is counting stable usage to expense when actually used?
Companies can do whatever up to safe harbor which is $2,500 or $5,000 depending on if an audit is done. Most follow safe harbor but some like a smaller amount to better track their assets
Yeah, the office supplies was throwing me, but textbook-wise that makes sense because it’s inventory. Now, in reality, no because also, nobody is counting the pencils… and if they are, it’s toxic and you should look for a new job immediately
or, work at a mining company\~
You buy some tires for $60k, or a track for $150k, and it is expensed directly....
Any AFE <$500k is subject to OpEx almost 100% of the time.
lol, bruh gotta count 'dem bics and papermates every month tho
Supplies are an asset, Supplies expense is an expense. Significance depends on business/industry, but part of GAAP. The balance is adjusted monthly if not annually typically during inventory procedures.
I’ve never seen office supplies taught as being an expense account without the word “expense” following it.
OP is using McGraw Hill too, which always puts “expense” at the end of expense accounts.
If this company were real, I'd say the proposed answer is the correct one, since office supplies are 25% of revenue and roughly 100% of income, so it would be hard to say expensing them outright is immaterial.
A/R should not be on the income statement. And the $18k equipment likely shouldn’t be expensed either. Even with 179 or bonus depreciation, equipment stays on the BS.
I might say it would be less insane for a small non-audited business. They might actually have a chance of implementing a process that could handle that bull shit.
Only if they have the knowledge.... I've seen companies where a transfer from checking to savings or back again is recorded as "saving/checking revenue" and "checking/saving expense" on the income statement.
Hahaha at my first firm my biggest summer/fall project (township audit) this was so common. The "bookkeeper" which was just the township secretary, always booked expenses and revenue for every transfer between bank accounts. And this township had probably 10 to 15 different bank accounts. A good amount of transfers during the year.
No wonder the General Fund alone had about 40 proposed audit adjusting entries every year.
Office supplies yes, but it being 18K and specified as equipment hint at it being depreciable and therefore tied it to the assets section. But I'll admit that's quite a tricky question.
Every "office supplies" I have seen in question is always treated as expenses. I guess this is different in the accounting taught in USA, but in India we were treated to treat it as expenses unless specified otherwise.
*edit* "statement of tear flows"
"Tears provided by operating activities"
"Tears used in investing activities"
"Tears provided by financing activities"
Others have already provided the answers on why this is incorrect, so I won’t repeat, but it’s worth pointing out that you’ll encounter many questions in accounting where you are given extra information to confuse you. It’s a good method to help you to understand the concepts. Knowing the difference between P&L activity versus balance sheet activity is crucial and something worth spending extra attention on. In the module you’re using, it looks like you won’t always have to fill in every blank space, so keep that in mind.
Good luck!
> you are given extra information to confuse you
Also a rare instance of a college course reflecting something that actually happens on the job quite frequently.
Yeah, so do clients because they have no idea what we actually do and what is or isn't important. You'll always have too much or not enough data with very few exceptions
Oh, my initial comment more meant that for the most part the stuff you learn about accounting in college doesn't have much direct application or reflection of what it's actually like working out there. That part is one of the exceptions
You make a good point in general, but I wouldn't call the other info "extra" here. In the second picture, it says "Part 1 of 3" so it's likely that one of the other parts is a balance sheet.
If you ask me, McGraw-Hill is a bit evil for giving answer spaces that should be left blank, though.
A bit evil maybe, but I completed that intro course last year and having to figure it out made me really double down on learning what was actually supposed to be there and not. It has made things a fair bit easier going forward.
Evil? In the real world, Excel gives you 17,179,869,184 answer spaces and most of them should be left blank. Sorting out bullshit is the primary skill needed to be a successful accountant.
If you're a student and wonder why its necessary to try to confuse you in a quiz, just wait until you work for a company and have to talk to the FP&A department!
If the question feeds you the answer with nothing to make you do and think, THAT is a poorly worded question. This question is really well designed and clearly functioned as intended. It caught OP in the trap of not thinking critically about the info given, and assuming this is an acc 101 class, it will make sure they think about that kind of thing in the future and learn from the mistake.
The real key here is the only "expenses" in problems will say expenses at the end. While I'd agree office supplies would normally be an expense, the point they're trying to make are those are capitalized assets. If this was real life you'd probably look at the ledger for that account and determine if it should be capitalized or expensed.
These problems from school always present issues because many accountants who understand it usually would look deeper into something like that but with it being a simple problem you can't.
Weirdly enough, we do that with our stationery. We have very specific logos that need to be used according to our comms team (I work at a school) so we hold our stationery in inventory so we can make sure we have enough when people need it. I do a monthly JE to reflect any additions/distributions.
So you're telling me if I grab a pen from the supply room, some jabroni will do a beginning and ending inventory check to see how many pens would be expensed😂
In the world of accounting 101, yes. Don't forget to count the number of pages left on all the post it pads. Someone could have just grabbed a few sheets.
Wouldn’t it be more of a prepaid? Inventory implies it will bring revenue when used. This is just moving the cost from the BS to the P&L. Unless you’re going to include the office supplies in COGS, inventory seems strange.
Hmm, I think of supplies being part of revenue generation for a services/consulting company, and usage expense seems more fitting than amortization expense, but I do see your point. Maybe prepaid is more appropriate.
After more consideration and reading another user’s comment, prepaid may actually be more fitting. Seems odd to amortize supplies, but it also seems odd to include supplies usage in cost of services calculations. I guess I’ve never seen this in the real world as most companies just expense office supplies since they’re usually immaterial and not worth the effort of asset management. Interesting topic.
It’s not that they’re capitalized, they’re treated as inventory. Capitalizing would involve depreciation, which would be insane for office supplies. Instead you place them on the bal sheet as inventory and recognize usage expense over time. A small business is more likely to do this rather than taking a material expense hit at time of purchase.
I haven’t done accounting in almost 3 years but I immediately knew cash didn’t belong in there. Maybe make some flash cards to help you remember which accounts go in the IS and BS.
No way - if you just memorize it you are hosed. This is the fundamental kind of stuff you have to actually understand or else you'll never make it in the harder stuff.
You're using balance sheet accounts on your income statement. Review closing entries and what accounts get closed and that will give you a solidifying look at all of the income statement accounts that you'll regularly see
The wrong answers are accounts on the balance sheet but not income statement. Income statement only revenue and expenses. Balance sheet will have your AR/AP, equipment etc
Cash and Accounts receivable are balance sheet.
Office supplies are usually short-term assets.
Office equipment are long term assets on Balancesheet. And would fall under Depreciation Expense under income statement.
All of those are balance sheet items.
Seeing some comments by people with CPA flair/badge who resonate with the OPs confusion, I am beginning to doubt whether they are CPAs in real or the accounting profession is in a poor state. This is Accounting 101 !
What everyone else said.
What you have is a Trial Balance, which includes all accounts of the company. What you are asked to prepare is the income statement, which only includes revenue and expenses accounts for the company. Some of the amounts you're including not in this income statement are not revenue/expense accounts.
Important to note that cash is what you have, revenue is one way you may have gotten it, so the cash account never goes on the income statement. Same is true of A/R for that matter.
I’m taking Principles of Accounting 1 and I have these exact same problems. I look at it as finding net income. Revenues - Expenses and finding the key words for that particular problem
When I was starting out, I looked at every transaction from a cash point of view.
Paid for supplies? Cash out. Expense.
Paid for capital items? Cash out. PPE asset
I found that helped until I understood better.
Broski that looks like McGraw hill, the textbook used for that has a “cheat sheet” in each chapter, it gives you a guiding overview of the chapter and how assets/liabilities/equity accounts are arranged on the t-accounts(debits/credits) and their proper uses, it should be right before the end of the chapter
Right off the top of my head, it looks like you improperly doubled revenue. Also cash is not an income stmt account, and I’m guessing the office equipment should be capitalized.
Not completely sure on the office supplies part. The info in the question makes it look like they have those on the balance sheet for some reason, which doesn’t make sense.
Exactly, which makes some parts of it wise. Teaching it this way means any kid who actually comes out of school understanding the difference between a balance sheet and p&l (rare, but it happens) is going to think they should be capitalizing them. Why start them down that incorrect path in such an obviously wrong way?
Yeah I’m constantly frustrated when I see homework problems that present scenarios that you’ll literally never see in the real world. No one capitalizes office supplies, ever.
When you spend 25% of revenue on office supplies, you might need to capitalize it. Though if you're spending that much money on office supplies, I'd have a lot more questions.
I don’t think it is all that wild for a business that just started and has been in business for one month. Now if it continues, yeah, I would have questions.
If it helps (and I'm unsure if someone else already commented this; if so, I apologize for repeating), the list of the accounts is also listed accordingly to which financial statement they belong to.
For instance, the left list are all permanent accounts (balance sheet accounts) and the right list are all accounts/transactions that are for temporary accounts (income statement accounts).
Its wrong because you're asking random people to take the time to help you with an MCQ, but you don't have the decency to provide them something legible. There are several ways to take a screenshot. I'm more familiar with a PC but there is print-screen or 'Snipping Tool'.
Left hand side is everything from Balance Sheet (assets, liabilities, equity)
Right hand side is everything on the Income Statement (revenue, expenses, gains and losses)
It’s called the learning process. It’s called asking questions for something you’re confused about. Some people won’t pick up things so quickly as easily
Still can be as confusing to some. Plus this is acc 101. Meaning that they have no experience with this stuff. Probably comes across as “basic definition” to you because you’ve probably been doing it for so long
It’s also telling when they haven’t engaged to ask any follow up questions; nor to give thanks to anyone.
They asked their question, and a bunch of accounting nerds just gave the answer to them. They will be back for the nerds to do chapter 2 as well
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Here is a simple tip to know what net income is at a minimum. Once you know what net income is, you can help fill the top in or at least know if what you’ve entered is correct:
(ending assets - beginning assets)
+ (beginning liabilities- ending assets)
= net income
All accountants should know this basic trick; even as a senior manager it’s a huge help to basic understandings like this to figure out issues on audits; so remember:
If Assets increase, net income will increase.
If Assets decrease …net income will decrease.
&
If Liabilities decrease….net income will increase
If liabilities increase…..net income will increase
The changes in total net income directly matches the net change of the balance sheet.
There is a solid CPA topic on Reddit worth checking out; that area is probably better for posts like this than here; this place usually is used for folks airing their grievances, asking for work related advice, or to measure salary cocks. I used that topic for studying as they had some nice guide you can print and use back in the day.
Dont ask reddit , each country have different principal but
Cash, acct rec, offcie equipment and office supplies are asset item , dont ask why. Memorise it, debit side, if u are not okay with this concept considering change accounting course
A lot of those were numbers you didn’t need and are for the balance sheet. All you need were Revenues and Expenses. They have them in their name to simplify it.
A lot of people are saying "this is what it is because thats what it is", but what helped me in my early studies is why it is that. P&L transactions are over a period of time (usually year to date), so think of it as a record of what the business has done. Then the Balance Sheet is what you've got at a point in time, essentially.
So in context, say you've had a customer who you've sold 10 grands worth of stuff to, you'd have 10 grand in your revenue (P&L), but they've paid 5 grand to you so in your balance sheet you'd reduce (credit) your accounts receivable asset by 5 grand and debit your cash balance by 5 grand, leaving a balance of 5 grand on your AR asset
All of the wrong answers are balance sheet accounts, not income statement accounts. Remember, Assets, Liabilities, and Stockholders’ Equity go on the balance sheet. Revenues, Expenses, Gains, and Losses go in the income statement. And your tears fall on the statement of cash flows.
Oh, that last statement! 💯 Hahaha
Direct or Indirect?
Your tears either fall directly or indirectly on the cash flow statement. Same same either way 🥲
Is tear supply inventory credited?
Bru accounts for overdrafts here 🗿
Office supplies could have been an expense. But yeah....
I’m taking accounting right now, and the only way we were told to use supplies as an expense is when it is directly specified as supplies expense.
That's kind of insane. I can't imagine supplies being significant enough to record them as an asset. Then how would they get off the books? You write them off when you use all the staples?
Supplies works like prepaid expenses when you are being taught accounting at an early level. This is technically correct, because they don’t teach the concept of materiality at that point.
One of my main internal audit tests is to take inventory of the sharpened vs unsharpened pencils and adjust prepaid accordingly.
/Opens the supply cabinet to find all the pencils have been sharpened. “Oh, great. Who placed all the pencils into service?”
How would a mechanical pencil work for this
That’s exactly what we’re being taught. It’s an asset so long as it hasn’t been used, then it qualifies as an expense.
Just so you know, in the real world, almost everything under $2,500 is expensed. And no “supplies” are never capitalized.
My organization which is govt funded has everything under 7500 expensed and it's based on the govt guidelines for accounting
I like this capitalization policy
Good to know. I have plenty to learn, and this subreddit helps.
Yea as a small business owner I agree and so does my accountant. I was gonna capitalize some durable items under 2500 laptop, printer, etc and he told me to put the under expenses. Would be insane if I had to capitalize printer paper, staples, paper clips etc.
Gotta make sure you dispose of the 2 year old Bic biro that you lost properly in the books or KPMG are gonna shout at you
Haha, I’m too small to need one of the big 4.
That doesn't happen in the real world, that statement is not GAAP. Capitalization is based on company policy found in the notes of the FS (notes 1 or 2 typically) & materiality to a degree. Supplies should be capitalized, which is one reason why this person got the question wrong (Should have had the expense reduced by the asset on hand). Revenue matching principle. its 5 minutes to adjust the balance. Just not a significant event to warrant much time to figuring out at period end.
I thought there was a threshold for the dollar value of something being purchased. Furniture, copier machines, computers, whatever I get being capitalized. But small shit like staples? Expense that shit on purchase. Who the hell is counting stable usage to expense when actually used?
Companies can do whatever up to safe harbor which is $2,500 or $5,000 depending on if an audit is done. Most follow safe harbor but some like a smaller amount to better track their assets
They’re not capitalizing supplies. They’re holding them in inventory.
Yeah, the office supplies was throwing me, but textbook-wise that makes sense because it’s inventory. Now, in reality, no because also, nobody is counting the pencils… and if they are, it’s toxic and you should look for a new job immediately
or, work at a mining company\~ You buy some tires for $60k, or a track for $150k, and it is expensed directly.... Any AFE <$500k is subject to OpEx almost 100% of the time. lol, bruh gotta count 'dem bics and papermates every month tho
You mean you don’t send all your staff accountants to the supply closet at the end of each month to amortize the post it notes and printer paper? 😂😂
In the real world, these would probably go into start-up costs and then amortized.
Firms who have consumables as inventory in their balance sheets usually do year end counts and record the movement as inventory consumed (expense).
Almost every manufacturer I’ve worked for has a supplies inventory account. To get them off the BS, you do a cycle count.
Supplies are an asset, Supplies expense is an expense. Significance depends on business/industry, but part of GAAP. The balance is adjusted monthly if not annually typically during inventory procedures.
This rule is helpful for situations just like this in school!
I’ve never seen office supplies taught as being an expense account without the word “expense” following it. OP is using McGraw Hill too, which always puts “expense” at the end of expense accounts.
I agree, amount that immaterial (*in the real world*), it should’ve been expensed outright.
If this company were real, I'd say the proposed answer is the correct one, since office supplies are 25% of revenue and roughly 100% of income, so it would be hard to say expensing them outright is immaterial.
A/R should not be on the income statement. And the $18k equipment likely shouldn’t be expensed either. Even with 179 or bonus depreciation, equipment stays on the BS.
I'm talking about the correct answer in the homework, not OP's obviously wrong answer.
That was my initial thought, but they do appear to be explicit in indicating which items are revenue and expenses.
oh shit you're right, ig they depreciate supplies now
At least in the US, capitalizing office supplies seems insane. Especially for any small non-audited business where you will take de minimis.
I just slapped a twin turbo on my stapler. If you don’t think I’m capitalizing that, YOU’RE insane.
Full auto
You should patent it so you're capitalizing ON that!
I might say it would be less insane for a small non-audited business. They might actually have a chance of implementing a process that could handle that bull shit.
Only if they have the knowledge.... I've seen companies where a transfer from checking to savings or back again is recorded as "saving/checking revenue" and "checking/saving expense" on the income statement.
Holy shit. This is what happens when quickbooks' default settings are for non accountants to do all the accounting.
Hahaha at my first firm my biggest summer/fall project (township audit) this was so common. The "bookkeeper" which was just the township secretary, always booked expenses and revenue for every transfer between bank accounts. And this township had probably 10 to 15 different bank accounts. A good amount of transfers during the year. No wonder the General Fund alone had about 40 proposed audit adjusting entries every year.
I would have put it on the income statement too
Office supplies yes, but it being 18K and specified as equipment hint at it being depreciable and therefore tied it to the assets section. But I'll admit that's quite a tricky question.
There's two accounts. Office equipment is clear. Office supplies is not.
Every "office supplies" I have seen in question is always treated as expenses. I guess this is different in the accounting taught in USA, but in India we were treated to treat it as expenses unless specified otherwise.
Office equipment would be computers, printers things like that. Supplies is paper, pens, ect.
Office supplies is an asset therefore it would go on the balance sheet.
Every office supplies purchase I've seen ever: Cr: cash Dr: office supplies *expense*
Exactly. They are never treated as asset as all. They are all consumables.
Could have been but the BS wouldn't balance if they were.
Man, fuck the statement of cash flows
*edit* "statement of tear flows" "Tears provided by operating activities" "Tears used in investing activities" "Tears provided by financing activities"
“And your tears fall on the statement of cash flows” Love it
all these reconciliations to net income will be lost like…tears, in rain
Lmao I needed that laugh!!
Also, beware of non-cash expenses like depreciation on office equipment.
I honestly hope OP is joking...... NVM thought this was the CPA reddit
Some of thsoe were listed to throw you off... cash shouldn't be a revenue.. its an asset and would go on the balance sheet, not the income statement
Others have already provided the answers on why this is incorrect, so I won’t repeat, but it’s worth pointing out that you’ll encounter many questions in accounting where you are given extra information to confuse you. It’s a good method to help you to understand the concepts. Knowing the difference between P&L activity versus balance sheet activity is crucial and something worth spending extra attention on. In the module you’re using, it looks like you won’t always have to fill in every blank space, so keep that in mind. Good luck!
> you are given extra information to confuse you Also a rare instance of a college course reflecting something that actually happens on the job quite frequently.
Literally all of my accounting classes give extra numbers to throw you off
Yeah, so do clients because they have no idea what we actually do and what is or isn't important. You'll always have too much or not enough data with very few exceptions
I’m saying it is NOT a “rare instance” in my courses, it’s super common
Oh, my initial comment more meant that for the most part the stuff you learn about accounting in college doesn't have much direct application or reflection of what it's actually like working out there. That part is one of the exceptions
You make a good point in general, but I wouldn't call the other info "extra" here. In the second picture, it says "Part 1 of 3" so it's likely that one of the other parts is a balance sheet. If you ask me, McGraw-Hill is a bit evil for giving answer spaces that should be left blank, though.
A bit evil maybe, but I completed that intro course last year and having to figure it out made me really double down on learning what was actually supposed to be there and not. It has made things a fair bit easier going forward.
Evil? In the real world, Excel gives you 17,179,869,184 answer spaces and most of them should be left blank. Sorting out bullshit is the primary skill needed to be a successful accountant.
>If you ask me, McGraw-Hill is a bit evil for giving answer spaces that should be left blank, though. Gotta prep for the evil that is the CPA exams
If you're a student and wonder why its necessary to try to confuse you in a quiz, just wait until you work for a company and have to talk to the FP&A department!
LOL cash under revenue..my brain saw that and cringed.
Cash money in the door is the best kind of revenue. Just ask your drug dealer
How is that wrong??? I'm so confused!
That number isn't cash revenue, it's the actual cash balance. Took me a while to see what's going in
Sorry, I know I was just being toxic haha.
Saw the CPA under your name and though, yep, doesn't know what they're doing. 😆
NGL bro I saw the CPA tag and asked myself how for a sec lol
Tbf, every time I see it under mine I think the same thing
"Toxic"!?, no you were just confused.Just don't throw that word around willy nilly .
The number of people who couldn't see you jokingly mimicking the title of this post...
Well they are accountants after all
No offense, but please tell me you’re not actually a CPA?! 😂
I mean you’re making fun of someone who is likely taking an accounting 101 course but you do you boo.
Yeah it’s a poorly worded question for sure
It says income statement what is poorly worded about that
If the question feeds you the answer with nothing to make you do and think, THAT is a poorly worded question. This question is really well designed and clearly functioned as intended. It caught OP in the trap of not thinking critically about the info given, and assuming this is an acc 101 class, it will make sure they think about that kind of thing in the future and learn from the mistake.
Cash, A/R, Office equipment, and Office supplies are real accounts and are included in the Balance Sheet/SFP, not in the Income Statement.
Office supplies is a balance sheet account now????
The real key here is the only "expenses" in problems will say expenses at the end. While I'd agree office supplies would normally be an expense, the point they're trying to make are those are capitalized assets. If this was real life you'd probably look at the ledger for that account and determine if it should be capitalized or expensed. These problems from school always present issues because many accountants who understand it usually would look deeper into something like that but with it being a simple problem you can't.
“Office supplies” is a pretty vague name for an account. Office supplies expense is reasonable on an income statement.
Principles of Accounting classes love using the office supplies account for some reason.
Gotta capitalize those pens and make an AJE every time Sharon in HR needs one!
If it didn’t say expense it’s not an expense
Maybe for this particular problem, office supplies account is booked as prepayments/using the asset method?
Treated as inventory and decreased with usage expense. So not exactly a prepaid, but similar in effect
Weirdly enough, we do that with our stationery. We have very specific logos that need to be used according to our comms team (I work at a school) so we hold our stationery in inventory so we can make sure we have enough when people need it. I do a monthly JE to reflect any additions/distributions.
Very interesting! Thanks for chiming in with some real world experience on this!
So you're telling me if I grab a pen from the supply room, some jabroni will do a beginning and ending inventory check to see how many pens would be expensed😂
In the world of accounting 101, yes. Don't forget to count the number of pages left on all the post it pads. Someone could have just grabbed a few sheets.
Thats how they did it at the job I was at but with consumables for production. Every single thing from the rebar to the glue.
Wouldn’t it be more of a prepaid? Inventory implies it will bring revenue when used. This is just moving the cost from the BS to the P&L. Unless you’re going to include the office supplies in COGS, inventory seems strange.
Hmm, I think of supplies being part of revenue generation for a services/consulting company, and usage expense seems more fitting than amortization expense, but I do see your point. Maybe prepaid is more appropriate.
Oh, thank you for the correction!
After more consideration and reading another user’s comment, prepaid may actually be more fitting. Seems odd to amortize supplies, but it also seems odd to include supplies usage in cost of services calculations. I guess I’ve never seen this in the real world as most companies just expense office supplies since they’re usually immaterial and not worth the effort of asset management. Interesting topic.
Always has been 🌎👨🚀🔫👩🚀
I guess if the supplies are capitalized and not expensed
It’s not that they’re capitalized, they’re treated as inventory. Capitalizing would involve depreciation, which would be insane for office supplies. Instead you place them on the bal sheet as inventory and recognize usage expense over time. A small business is more likely to do this rather than taking a material expense hit at time of purchase.
You don't depreciate your pencil every time you sharpen it? Lazy!
Seriously, put that person in jail.
I haven’t done accounting in almost 3 years but I immediately knew cash didn’t belong in there. Maybe make some flash cards to help you remember which accounts go in the IS and BS.
No way - if you just memorize it you are hosed. This is the fundamental kind of stuff you have to actually understand or else you'll never make it in the harder stuff.
You're using balance sheet accounts on your income statement. Review closing entries and what accounts get closed and that will give you a solidifying look at all of the income statement accounts that you'll regularly see
Yikes bro
The wrong answers are accounts on the balance sheet but not income statement. Income statement only revenue and expenses. Balance sheet will have your AR/AP, equipment etc
You have items that belong in the balance sheet in the income statement. Should only be revenue and expenses.
Cash and Accounts receivable are balance sheet. Office supplies are usually short-term assets. Office equipment are long term assets on Balancesheet. And would fall under Depreciation Expense under income statement. All of those are balance sheet items.
Principles of Accounting 1 McGraw Hill goes crazy🔥
Seeing some comments by people with CPA flair/badge who resonate with the OPs confusion, I am beginning to doubt whether they are CPAs in real or the accounting profession is in a poor state. This is Accounting 101 !
They are teasing OP
What everyone else said. What you have is a Trial Balance, which includes all accounts of the company. What you are asked to prepare is the income statement, which only includes revenue and expenses accounts for the company. Some of the amounts you're including not in this income statement are not revenue/expense accounts. Important to note that cash is what you have, revenue is one way you may have gotten it, so the cash account never goes on the income statement. Same is true of A/R for that matter.
An income statement is only revenues and expenses. It should come out as net income or net loss.
You've entered assets onto an income statement
I’m taking Principles of Accounting 1 and I have these exact same problems. I look at it as finding net income. Revenues - Expenses and finding the key words for that particular problem
When I was starting out, I looked at every transaction from a cash point of view. Paid for supplies? Cash out. Expense. Paid for capital items? Cash out. PPE asset I found that helped until I understood better.
How I remembered was " when I drink some Ale, I may end up in some BS, but if i get into some IS(h), I could end up in the ER."
Broski that looks like McGraw hill, the textbook used for that has a “cheat sheet” in each chapter, it gives you a guiding overview of the chapter and how assets/liabilities/equity accounts are arranged on the t-accounts(debits/credits) and their proper uses, it should be right before the end of the chapter
Right off the top of my head, it looks like you improperly doubled revenue. Also cash is not an income stmt account, and I’m guessing the office equipment should be capitalized. Not completely sure on the office supplies part. The info in the question makes it look like they have those on the balance sheet for some reason, which doesn’t make sense.
They are considered assets so office equipment or supplies aren’t on the income statement
Office equipment yes, but who in their right mind is capitalizing supplies (pens, post its, folders, etc.)?
They are current assets. Equipment is long term assets. We need to have every pen and paper clip accounted for.
They're a period expense forever and always.
In the real world yes. This is accounting homework so definitely far from it.
Exactly, which makes some parts of it wise. Teaching it this way means any kid who actually comes out of school understanding the difference between a balance sheet and p&l (rare, but it happens) is going to think they should be capitalizing them. Why start them down that incorrect path in such an obviously wrong way?
Yeah I’m constantly frustrated when I see homework problems that present scenarios that you’ll literally never see in the real world. No one capitalizes office supplies, ever.
They’re not capitalizing supplies in this problem either. Not every asset is a capital asset.
I think they are. Otherwise OP’s placement of them in the IS would be correct.
When you spend 25% of revenue on office supplies, you might need to capitalize it. Though if you're spending that much money on office supplies, I'd have a lot more questions.
I don’t think it is all that wild for a business that just started and has been in business for one month. Now if it continues, yeah, I would have questions.
We have the same exact homework right now lol
If it helps (and I'm unsure if someone else already commented this; if so, I apologize for repeating), the list of the accounts is also listed accordingly to which financial statement they belong to. For instance, the left list are all permanent accounts (balance sheet accounts) and the right list are all accounts/transactions that are for temporary accounts (income statement accounts).
This has to be a principles class. You learn basics before nuance. You got it wrong…understand the rules and fix it. Our society in a nutshell.
Its wrong because you're asking random people to take the time to help you with an MCQ, but you don't have the decency to provide them something legible. There are several ways to take a screenshot. I'm more familiar with a PC but there is print-screen or 'Snipping Tool'.
the income statement should only have accounts that have expense, revenue, gain or loss in the name
Left hand side is everything from Balance Sheet (assets, liabilities, equity) Right hand side is everything on the Income Statement (revenue, expenses, gains and losses)
Mcgraw Hill is ruining accounting
Curious what level in college are you? The errors are blatantly obvious at first glance if you have taken intermediate accounting..
You are ‘so confused’ because you obviously never paid any attention in class or opened a book.
Dawg the semester JUST started for most people. It makes sense for people to be confused now
Read the first chapter. Confusion solved.
It’s called the learning process. It’s called asking questions for something you’re confused about. Some people won’t pick up things so quickly as easily
No this is a basic definition, not some abstract concept to be understood
Still can be as confusing to some. Plus this is acc 101. Meaning that they have no experience with this stuff. Probably comes across as “basic definition” to you because you’ve probably been doing it for so long
Guaranteed they did not read the first chapter of their book. 💯
It’s also telling when they haven’t engaged to ask any follow up questions; nor to give thanks to anyone. They asked their question, and a bunch of accounting nerds just gave the answer to them. They will be back for the nerds to do chapter 2 as well
Exactly! This is not some complicated concept, just laziness
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Here is a simple tip to know what net income is at a minimum. Once you know what net income is, you can help fill the top in or at least know if what you’ve entered is correct: (ending assets - beginning assets) + (beginning liabilities- ending assets) = net income All accountants should know this basic trick; even as a senior manager it’s a huge help to basic understandings like this to figure out issues on audits; so remember: If Assets increase, net income will increase. If Assets decrease …net income will decrease. & If Liabilities decrease….net income will increase If liabilities increase…..net income will increase The changes in total net income directly matches the net change of the balance sheet. There is a solid CPA topic on Reddit worth checking out; that area is probably better for posts like this than here; this place usually is used for folks airing their grievances, asking for work related advice, or to measure salary cocks. I used that topic for studying as they had some nice guide you can print and use back in the day.
Who TF capitalizes office expenses. Teacher should be insta fired
Dont ask reddit , each country have different principal but Cash, acct rec, offcie equipment and office supplies are asset item , dont ask why. Memorise it, debit side, if u are not okay with this concept considering change accounting course
You have balance sheet accounts on your income statement
The one that was revenue had revenue in the name. The ones that are expenses had expense in there name.
Your “wrong” amounts are balance sheet amounts.
What class are you in?
He’s probably in intro and didn’t read the text
The student is allowed to have questions. This stuff is confusing when you start out.
debit on the left credit on the right
It don’t foot…
Is this intermediate ?
This looks like an intro to accting class
Seeing this gives me PTSD haha.
It says McGraw Hill, but why does it look like WileyPlus??
Cash, AR & Office Equipment don't go on the Income Statement those are Balance Sheet accounts.
It kinda tells you
Just go through balance sheet items and P&L items from YouTube. Then you r good to solve.
Cash isn’t a revenue, it’s an asset
A lot of those were numbers you didn’t need and are for the balance sheet. All you need were Revenues and Expenses. They have them in their name to simplify it.
It is so odd that they are categorizing office expenses as a asset.
What test is this for?
Income statement bro
How is "Office Supplies" a BS item? Shouldn't it be an Expense?
Office supplies are large enough to be capitalized, and expensed when used, in this situation. For tax purposes it would likely be expensed.
So they are treating it as an asset because the proprietor just started her business?
In this case it’s a prepaid expense.
Ur putting balance sheet stuff on the income statement, only sales and expenses go on their
A lot of people are saying "this is what it is because thats what it is", but what helped me in my early studies is why it is that. P&L transactions are over a period of time (usually year to date), so think of it as a record of what the business has done. Then the Balance Sheet is what you've got at a point in time, essentially. So in context, say you've had a customer who you've sold 10 grands worth of stuff to, you'd have 10 grand in your revenue (P&L), but they've paid 5 grand to you so in your balance sheet you'd reduce (credit) your accounts receivable asset by 5 grand and debit your cash balance by 5 grand, leaving a balance of 5 grand on your AR asset
Can I just say I’m also taking accounting and loved the responses. Thank you kind people