Respuesta :
When the company pays cash to purchase the raw materials the effect of the financial statements will be that the cash amount will reduce and the stock amount will increase by $14000.
The company requires to keep an account of the transactions that take place in the financial statements maintained by the company. It is very important to keep and update financial statements as these will be checked by an auditor at regular intervals. This will be more in the case of public limited companies as a lot of people invest in them.
The golden rule of account states that when something enters the premises that particular account should be debited. So in this case the raw materials are entering the premises. The raw materials are shown as stock in the financial statements. So this amount will increase the stock amount. The cash that is being paid for the raw materials is going out of the premises. So this amount will have to be credited according to the rules. This will reduce the cash amount.
The journal entry that will be written to show this transaction in the journal of the financial statements will be:
Stock a/c Dr. 14,000
To Cash a/c 14.000
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