Answer :
Let's categorize each account as either an asset, liability, or owner's equity account.
1. Interest Expense: This is classified under owner's equity. Expense accounts reduce owner's equity because they represent costs that decrease the owner's residual interest in the business.
- [tex]\( \text{Owner's Equity} \)[/tex]
2. Service Revenue: This also falls under owner's equity. Revenue accounts increase owner's equity as they signify income from business operations.
- [tex]\( \text{Owner's Equity} \)[/tex]
3. Accounts Receivable: This is an asset. It represents money owed to the business by customers for goods or services that have been delivered but not yet paid for.
- [tex]\( \text{Asset} \)[/tex]
4. Note Payable: This account is a liability. It represents amounts that the business has promised to pay back, typically involving loans.
- [tex]\( \text{Liability} \)[/tex]
5. Inventory: This is classified as an asset. It includes goods available for sale, raw materials, and finished products.
- [tex]\( \text{Asset} \)[/tex]
6. Prepaid Rent: The classification of this account has not been determined in the given response.
- [tex]\( \text{None provided} \)[/tex]
7. Unearned Revenue: The classification of this account has not been determined in the given response.
- [tex]\( \text{None provided} \)[/tex]
These classifications are neatly summarized in the table below:
[tex]\[ \begin{tabular}{|l|c|c|c|} \hline & \text{Asset} & \text{Liability} & \text{Owner's Equity} \\ \hline \text{Interest Expense} & & & \(\times\) \\ \hline \text{Service Revenue} & & & \(\times\) \\ \hline \text{Accounts Receivable} & \(\times\) & & \\ \hline \text{Note Payable} & & \(\times\) & \\ \hline \text{Inventory} & \(\times\) & & \\ \hline \text{Prepaid Rent} & & & \\ \hline \text{Unearned Revenue} & & & \\ \hline \end{tabular} \][/tex]
1. Interest Expense: This is classified under owner's equity. Expense accounts reduce owner's equity because they represent costs that decrease the owner's residual interest in the business.
- [tex]\( \text{Owner's Equity} \)[/tex]
2. Service Revenue: This also falls under owner's equity. Revenue accounts increase owner's equity as they signify income from business operations.
- [tex]\( \text{Owner's Equity} \)[/tex]
3. Accounts Receivable: This is an asset. It represents money owed to the business by customers for goods or services that have been delivered but not yet paid for.
- [tex]\( \text{Asset} \)[/tex]
4. Note Payable: This account is a liability. It represents amounts that the business has promised to pay back, typically involving loans.
- [tex]\( \text{Liability} \)[/tex]
5. Inventory: This is classified as an asset. It includes goods available for sale, raw materials, and finished products.
- [tex]\( \text{Asset} \)[/tex]
6. Prepaid Rent: The classification of this account has not been determined in the given response.
- [tex]\( \text{None provided} \)[/tex]
7. Unearned Revenue: The classification of this account has not been determined in the given response.
- [tex]\( \text{None provided} \)[/tex]
These classifications are neatly summarized in the table below:
[tex]\[ \begin{tabular}{|l|c|c|c|} \hline & \text{Asset} & \text{Liability} & \text{Owner's Equity} \\ \hline \text{Interest Expense} & & & \(\times\) \\ \hline \text{Service Revenue} & & & \(\times\) \\ \hline \text{Accounts Receivable} & \(\times\) & & \\ \hline \text{Note Payable} & & \(\times\) & \\ \hline \text{Inventory} & \(\times\) & & \\ \hline \text{Prepaid Rent} & & & \\ \hline \text{Unearned Revenue} & & & \\ \hline \end{tabular} \][/tex]
