• Scenario 1: On July 16, the business owner took home, for personal use, office supplies that cost the company $478.

This will be recorded as

Owner's Draw Dr $478
Office Supplies Cr $478

This will decrease the expense on Income statement and hence increase the net income.

The Equity account of the Owner will be reduced by $478 due to draw and the net income will increase by $478- so there will be no effect on the Balance Sheet.

Cash flow Statement will not be affected. However- Cash from Operating activities will increase by $478 and Cash from financing activities will reduce by $478.

Scenario 2: The company accepted a note from the chief executive officer and loaned him $50,000. But the note has no due date, and will only be repaid if the CEO is fired.

Entry will be

Note Receivable - CEO Dr $50.000

Bank Cr Dr 50,000

This will not affect income statement

Balance Sheet will be affected - Other asset will increase by $50K and Bank balance will reduce by $50K

Cash Flow statement - will report cash outflow flow from investing activities for $50K and hence will decrease the cash balance.

If the billing is delayed, it would mean that this purchase will not be recorded until next year. However inventory of $15,000 will be included as inventory if the physical method of inventory is used.

The income statement will make an adjustment to report this inventory as

Inventory Dr $15000

Cost of Goods Sold Cr $15000

This will reduce the cost of goods sold and hence increase the income on the income statement

Balance sheet will report an increase in inventory of $15,000

Cash flow statement will report a cash outflow for increase in inventory.