Arizona State University (ASU) BIO201 Human Anatomy And Physiology I Exam 3 Practice Study Guide

A company earns $18,000 of service revenue on account. What is the immediate effect on the accounting equation?

Assets increase $18,000 and equity increases $18,000 Assets increase $18,000 and liabilities increase $18,000 Liabilities decrease $18,000 and equity increases $18,000 Assets and equity both decrease $18,000

Correct Answer:

Assets increase $18,000 and equity increases $18,000

Explanation:

Accounts receivable increases by $18,000 and revenue increases retained earnings through net income, so assets and equity both increase $18,000.

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