Cambridge Cleaners started business on January 1, 2013, and immediately purchased $5,000 of supplies to use in the business. At the end of the month, 30 percent of the supplies remains unpaid and 20% are still on hand. What amounts should appear as an expense on the financial statements for January, 2013? Income Statement Statement of Cash Flows

Question

Quizplus · Accepted Answer

The amount that should appear as an expense on the Income Statement for January, 2013 is the cost of supplies used for the month. Since 20% of the supplies are still on hand, only 80% has been used. Therefore, the cost of supplies used for the month is $5,000 x 80% = $4,000.

On the other hand, the amount that should appear on the Statement of Cash Flows is the cash paid for supplies during the month. Since 30% of the supplies remains unpaid, it means that 70% has been paid during the month. Therefore, the cash paid for supplies during the month is $5,000 x 70% = $3,500.

Hence, the best choice is D as it correctly reflects the amounts that should appear on both the Income Statement and the Statement of Cash Flows.

Cambridge Cleaners Started Business on January 1, 2013, and Immediately