Question

Month of August: Loan received: $10,000 Money due January of next year: $11,000. What will be...

Month of August: Loan received: $10,000

Money due January of next year: $11,000.

What will be the affects on the items A,B,C&D below on the financial statement ending at the end of October? In other words will each increase, decrease or have no effect? Explain your reasoning.

A. liabilities

B. equity

C. assets

D. net income

Business   Accounting   
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Answer #1

A. Liabilities: Loan received is a liability. Therefore, the liabilities will increase to the amount of loan amount.

B. Equity: Equity comprises of common stock. It is not affected due to loan taken.

C. Assets: Loan is received in the form of cash or in bank account. Therefore, assets would increase as a result of this.

D. Net income: Only the interest portion of the loan is charged as an expense in the statement of profit and loss. As a result, the income would decrease by the portion of interest amount charged.

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