Leaning Online

When a business provides services to a customer on credit, it records Accounts Receivable because the customer owes money to the business. When that customer later pays the amount due, the business receives cash and the receivable is reduced. This is an important accounting transaction because it demonstrates that not every cash receipt increases total assets . The effect depends on what happened to the other asset account involved in the transaction. Multiple Choice Question (MCQ) 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. Liabilities increase and stockholders' equity decreases. b. There is no effect on the accounting equation as one asset account increases while another asset account decreases. c. Assets increase and stockholders' equity increases. d. Assets increase and liabilities increase. Correct Answer: b. There is no effect on the accounting eq...

Billed Clients for Services Provided: Effect on the Accounting Equation (With Example) Billed clients for services performed means that you, as a service company, performed the work tasks as requested by clients and send bills to clients demanding them to make payment for services provided against completed work tasks. So, you earned the revenue but the payment is not received from clients. When a business bills clients for services already provided , it has completed the work and earned the revenue. However, the customer has not paid yet . Instead of receiving cash immediately, the business records an Accounts Receivable , which represents money the customer owes. At the same time, because the service has already been performed, the business recognizes Service Revenue . Revenue increases the owner's equity because it contributes to the company's profits. Therefore, the accounting equation remains balanced as follows: Assets increase because Accounts Receivable increases. O...

Received Commission: Effect on Accounting Equation Understanding how commission transactions affect the accounting equation is essential for accounting students. When a business earns commission, it affects both assets and owner's equity. This guide explains the correct MCQ answer, journal entry, and accounting equation impact with examples. Question: Received commission. Show its effect on the accounting equation. a. Assets and owner's equity goes down b. Assets and liabilities goes up c. Assets goes down and owner's equity goes up d. Assets and owner's equity goes up Correct Answer: d) Assets and owner's equity goes up Explanation: Effect of Received Commission on Accounting Equation When a business receives commission , it means the business has earned income by providing services to a customer. In accounting, earned commission is treated as revenue because it increases the profit of the business. A commission received transaction affects two accounts: ...

Commission Received in Advance : Accounting Treatment with Journal Entry and Accounting Equation When a business receives a commission payment before completing the agreed services, the amount received is not considered earned revenue . Instead, it represents a current liability because the business still has an obligation to provide the promised services. This concept is important in accrual accounting, where revenue is recognized only after it has been earned, regardless of when cash is received. What Is Commission Received in Advance? Commission received in advance (also called Unearned Commission ) is money collected from a customer before the related services have been performed. Since the business still owes the customer the agreed services, this amount is recorded as a current liability on the balance sheet. Once the services are completed, the liability is reduced, and the amount is recognized as commission revenue. Accounts Involved Receiving commission in advance affect...

Introduction Errors in recording purchases and ending inventory can affect a company's financial statements, including its balance sheet, income statement, and financial ratios. However, the effect of an accounting error depends on how the error affects the related accounts. Suppose a company purchases goods on credit but accidentally fails to record the purchase and does not include those goods in its ending inventory. What happens to purchases, cost of goods sold, net income, accounts payable, retained earnings, working capital, and the current ratio? In this article, we will explain the effects of this accounting error under the periodic inventory system , using a practical example and simple calculations. What Happens When a Purchase Is Not Recorded? When an entity purchases goods on credit, it normally records the transaction as follows: Debit: Purchases Account Credit: Accounts Payable Account Under a periodic inventory system, purchases are recorded throughout the accoun...

Introduction When a company sends a cheque to a customer, the transaction affects specific accounts in its accounting records. The exact accounts depend on the reason for the payment. For example, if a company refunds an amount that a customer has paid in excess of their outstanding invoices, the transaction reduces both cash and the company's refund liability. Understanding which accounts are affected is an essential part of financial accounting. It helps students, business owners, and accounting professionals record transactions correctly, prepare accurate financial statements, and maintain the accounting equation. In this article, we will explain the accounts affected when a company sends a cheque to a customer, the relevant journal entry, the treatment of cash and refund payable, and the effect on the accounting equation. A practical example will help clarify the concept. What Accounts Are Affected When a Company Sends a Cheque to a Customer? When a company refunds an excess ...

Introduction The main purpose of accounting is to provide financial information that is useful for making informed economic decisions. Accounting is not simply about recording financial transactions, preparing financial statements, or calculating profit and loss. Its ultimate goal is to help individuals, businesses, investors, employees, creditors, and government authorities understand financial performance and make better decisions. Accounting information helps users evaluate a company's profitability, financial position, cash flows, operating efficiency, and future prospects. Both internal users and external users of accounting information rely on financial reports to make rational decisions based on reliable financial data. For example, investors may use accounting information to decide whether to invest in a business, while managers use it to control costs and improve operational efficiency. Similarly, creditors examine financial statements to determine whether a company can ...