Indicate whether each of the following is identified with (1) an asset, (2) a liability, or (3) stockholders' equity:

Question

Line Item Description Classification
a. Accounts payable
b. Accounts receivable
c. Fees earned
d. Supplies
e. Supplies expense
f. Utilities expense

Answer 1

Here's the classification for each line item:

| Line Item Description | Classification | |------------------------|---------------------------| | a. Accounts payable | (2) a liability | | b. Accounts receivable | (1) an asset | | c. Fees earned | (3) stockholders' equity | | d. Supplies | (1) an asset | | e. Supplies expense | (3) stockholders' equity | | f. Utilities expense | (3) stockholders' equity |

Notes:

• Liabilities are obligations the company owes to outsiders (in this case, accounts payable).
• Assets are resources owned by the company (accounts receivable and supplies).
• Stockholders' equity represents the owners' claim after liabilities have been subtracted from assets; fees earned contribute to this, while expenses reduce equity but can also be categorized in the accounting cycle with respect to relating to equity.