I am trying to get this done asap because it is an online assignment and the web site is down for today. I will share my own answers if you all will provide feedback on them. Any guidance on these topics would be much appreciated:
Indicate whether each transaction is classified as a financing (f), investing (i), or operating (o) activity.
1. Pay amount owed to the bank for previous borrowing. (f)
2. Pay utility costs. (o)
3. Purchase equipment to be used in operations. (i)
4. Provide services to customers. (o)
5. Purchase office supplies. (a)
6. Purchase a building. (i).
7. Pay workers' salaries. (o)
8. Pay for research and development costs. (i)
9. Pay taxes to the IRS. (o)
10. Sell common stock to investors. (f)
For Number Five above, I meant to write (i).
To determine whether each transaction is classified as a financing (f), investing (i), or operating (o) activity, you can follow these guidelines:
1. Pay amount owed to the bank for previous borrowing. (f)
- This transaction is classified as a financing activity because it involves a payment related to borrowing from a bank.
2. Pay utility costs. (o)
- This transaction is classified as an operating activity because it relates to the day-to-day operational expenses of the business.
3. Purchase equipment to be used in operations. (i)
- This transaction is classified as an investing activity because it involves the acquisition of a long-term asset (equipment) to be used in the business operations.
4. Provide services to customers. (o)
- This transaction is classified as an operating activity because it represents the core revenue-generating activities of the business.
5. Purchase office supplies. (a) [Assuming 'a' refers to administrative or overhead]
- It seems like there is an error here as 'a' is not a valid classification. However, if it is meant to refer to administrative or overhead, then this transaction would also be classified as an operating activity.
6. Purchase a building. (i)
- This transaction is classified as an investing activity because it involves the acquisition of a long-term asset (building) that will be used in the business operations.
7. Pay workers' salaries. (o)
- This transaction is classified as an operating activity as it relates to the regular payment of employee wages for the business operations.
8. Pay for research and development costs. (i)
- This transaction is classified as an investing activity because it involves spending on research and development, which is aimed at enhancing or creating new products or processes.
9. Pay taxes to the IRS. (o)
- This transaction is classified as an operating activity since taxes are considered regular operating expenses.
10. Sell common stock to investors. (f)
- This transaction is classified as a financing activity because it involves the issuance/sale of equity (common stock) to investors, which represents a source of financing for the business.
Please note that these classifications may vary based on specific accounting standards and policies used by different entities. It's always essential to consult the applicable accounting framework or guidelines for accurate classifications.