Payment is received from customers who were billed earlier for services provided for them. For this transaction, identify the effect on the accounting equation.

a. Assets increase and stockholders' equity increases.

b. There is no effect on the accounting equation as one asset account increases while another asset account decreases.

c. Liabilities increase and stockholders' equity decreases.

d. Assets increase and liabilities increase.

Question

Business

Gideon Rowland

25 November, 01:15

Payment is received from customers who were billed earlier for services provided for them. For this transaction, identify the effect on the accounting equation.

a. Assets increase and stockholders' equity increases.

b. There is no effect on the accounting equation as one asset account increases while another asset account decreases.

c. Liabilities increase and stockholders' equity decreases.

d. Assets increase and liabilities increase.

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Answers (1)

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Diamond Webb · Answer 1

b. There is no effect on the accounting equation as one asset account increases while another asset account decreases.

Explanation:

On billing the customer, sales account would have been credited and accounts receivables debited.

On payment by the customer, accounts receivables would be credited and cash account debited.

Hence there will be no increase/decrease in asset as cash and receivables would nil off.

As such, the right option is b. There is no effect on the accounting equation as one asset account increases while another asset account decreases.