3-14                      Determining the effect of inventory transactions on the horizontal statements model: perpetual system

Causey Sales Company experienced the following events:

1.  Purchased merchandise inventory for cash.

2.  Purchased merchandise inventory on account.

3.  Sold merchandise inventory for cash. Label the revenue recognition 3a and the expense recognition 3b.

4.  Sold merchandise inventory on account. Label the revenue recognition 4a and the expense recognition 4b.

5.  Returned merchandise purchased on account.

6.  Paid cash for selling and administrative expenses.

7.  Paid cash on accounts payable not within the discount period.

8.  Paid cash for transportation-in.

9.  Collected cash from accounts receivable.

10.  Paid cash for transportation-out.

 

Required

Identify each event as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Also explain how each event affects the financial statements by placing a 1 for increase, 2 for decrease, or NA for not affected under each of the components in the fol- lowing statements model. Assume the company uses the perpetual inventory system. The first event is recorded as an example.

 

Event Event No.        Type   1          AE	  Assets   5  Liab.   1 Equity   12        5      NA     1       NA	  Rev.    2  Exp.    5  Net Inc.   NA     2     NA     5        NA	  Cash Flow	Â
			2OA	Â