Concept explainers
(a)
Assets (A): Assets are those items that provide value for money and future economic benefit for an organization. In simple, it can be referred to as resources possess by a business. Example: Cash, accounts receivable, inventory.
Liabilities (L): Liabilities are debt and obligations of a business. These are the claims of creditors and financial institutions against the resources of the business. Example: Accounts payable, long-term debt, and notes payable.
Expenses (E): Expenses are the costs that the businesses spend to produce and sell the goods and services to the customers or clients. Example: Cost of goods sold, rent expense, and interest expense.
Revenues (R): Revenues are the income or earnings that a business receives for delivering the goods and services. Example: Service revenue, interest revenue, and gain from sale of land.
To identify: whether the given item is an asset (A), Liability (L), Stockholders’ equity (SE), Revenue (R), or Expense (E) item.
(b)
To prepare: An income statement for Incorporation L for the year ended December 31, 2017.
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Financial Accounting: Tools for Business Decision Making, 8th Edition
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