MIS 302F Study Guide - Midterm Guide: Retained Earnings

• School: UT-Austin
• Department: Management Information Systems
• Course: MIS 302F
• Professor: Tuttle Clint

Document Summary

Softbyte inc. receives a bill for from the daily news for advertising but postpones payment until a later date. This transaction results in an increase in liabilities and a decrease in stockholders" equity. The two sides of the equation still balance at ,800. Expenses do not have to be paid in cash at the time they are incurred. When softbyte pays at a later date, the liability accounts payable will decrease and the asset cash will decrease (see transaction 8 in the next section). The cost of advertising is an expense (rather than an asset) because softbyte has used the benefits. Advertising expense is included in determining net income. Softbyte inc. performs ,500 of programming services for customers. The company receives cash of ,500 from customers, and it bills the balance of ,000 on account. This transaction results in an equal increase in assets and stockholders" equity. Softbyte recognizes ,500 in revenues when it performs the service.