Chapter 1, Problem 13QS

To determine

Concept Introduction:

Revenue: In normal course of business operations or business operating cycle the transactions which results in cash inflow in the company can be termed as revenue for example sale of products, service revenue.

Expenses: In normal course of business operations or business operating cycle the transaction which results in cash outflow in the company can be termed as expenses for example cost of goods sold, salaries, and electricity expenses

Owner equity: The amount contributed by owner to the company by way capital infusion , the purchase of equity shares by shareholders , the net profits are part of owners equity

Accounting Equation: In accounting all transactions will always have debit and credit entry and always the total amount of debit will be equal to credit amount for every accounting equation. The accounting equation can be written as follows

  $\begin{array}{l}\text{Assets = Liabilities + Equity}\\ \end{array}$

The accounting equation can be more detailed if equity component is detailed and can be shown as follows

  $\begin{array}{l}\text{Assets = Liabilities + Equity(owner capital - owners withdrawal +revenues -expenses)}\\ \end{array}$

Business operating cycle: All transactions from purchase of raw materials to production to sales and collection of cash of company normal business activities

Requirement I

To classify the items as expenses, revenue or withdrawals