Question

Oakland Company paid $200 cash for various manufacturing overhead costs, not before recorded. How does this transaction affect the financial statements

Answer 1

The fact that Oakland Company paid $200 cash for manufacturing costs and overheads after these were recorded would lead to the financial statement effects of reducing assets and equity.

What happens when manufacturing overheads are paid?

Because Oakland Company used $200 cash to pay for the manufacturing costs, the cash that the company holds will reduce. As cash is an asset, it means that assets will reduce as well.

Manufacturing overheads are a manufacturing expense which means that they will reduce the revenue and therefore the net income of the company. Net income is equity so equity will decrease as well.

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