eBook Purchases and Sales of Merchandise, Cash Flows Pedal City, a bike shop, opened for business on April 1. It uses a periodic inventory system. The following transactions occurred during the first month of business: Required: For all accounting equations, if a financial statement item is not affected, select "No Entry" and leave the amount box blank or enter "0". If the effect is negative, use the minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. 1. Identify and analyze each of the following transactions of Pedal City. April 1: Purchased five units from Giorgio, Inc. for $400 total, with terms 3/10, n/30, FOB destination. Activity Operating Accounts Account Payable Increase, Purchases Increase Statement(s) Balance Sheet and Income Statement Feedback 1) Determine activity. 1a) Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners. Businesses borrow money or raise money from selling of their stock. 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities. 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases. 3) Balance Sheet accounts: Assets = Liabilities + Stockholders' Equity. Income Statement accounts: Revenues Expenses = Net Income. (Equations must stay in balance) 4) Cost of goods purchased in periodic inventory system. Purchases is a temporary account used to record acquisitions of merchandise. Recording purchases in a periodic system increase cost of goods sold, which is an expense. Purchases function as an expense indirectly to retained earnings. Purchases is not an asset account. 5) Purchase returns & allowances and purchase discounts (contra-purchases account used in a periodic inventory system causing expenses to decrease) are deducted from purchases to arrive at net purchases. The costs incurred for shipping is called transportation-in. These costs are added to net purchases, which increases the cost of goods purchased, and therefore added to the expenses. 6) Record inventory purchased (increase to purchases) on account payable (increase). How does this entry affect the accounting equation? Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues Expenses = Income No Entry fill in the blank 184d3708600cfde_2 Accounts Payable fill in the blank 184d3708600cfde_4 fill in the blank

184d3708600cfde_5 No Entry fill in the blank 184d3708600cfde_7 Purchases fill in the blank 184d3708600cfde_9 fill in the blank 184d3708600cfde_10 Feedback Partially correct April 10: Paid for the April 1 purchase. Activity Operating Accounts Cash Decrease, Account Payable Decrease Statement(s) Balance Sheet only Feedback How does this entry affect the accounting equation? Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues Expenses = Income Cash fill in the blank 21306bf6e00cf8c_2 Accounts Payable fill in the blank 21306bf6e00cf8c_4 fill in the blank 21306bf6e00cf8c_5 fill in the blank 21306bf6e00cf8c_7 fill in the blank 21306bf6e00cf8c_9 fill in the blank 21306bf6e00cf8c_10 Feedback April 15: Sold one unit for $200 cash. Activity Accounts Statement(s) Feedback 1) Determine activity. 1a) Financing activities are transactions (other than payment of interest) in