Payment Is Received From Customers Who Were Billed Earlier for Services Provided: Effect on the Accounting Equation
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...