When An Account Receivable Is Collected In Cash, The Total Assets Of The Business Increase

Solution To True Or False Question With A Simple Example

The statement is “False”, as when Collection from Receivable is made, then there is an increase in cash account, which is a Current Asset, due to which total assets increase but at the same time, Accounts Receivable, which is a Current Asset, is decreasing which decreases total assets. So the total assets remain unchanged due to increase in cash account and decrease in account receivable account with an equal amount.

Example:

The company received cash of $5,000 from its customer.

The entry to record is to debit cash account of $5,000 and credit Account Receivables of $5,000.

From Accounting Equation, we have:

Change In Total Assets  = Increase In Assets (Cash)  -  Decrease In Assets (Account Receivable)   

Change In Total Assets  =              $5,000                       -                          $5,000

Change In Total Assets  =                   0

So, total assets neither increase nor decrease but these remain unchanged.