Cengage Accounting Exam 1 Practice Test

Which statement is true about the collection of an accounts receivable in cash?

It increases total assets. It decreases total assets. It does not affect total assets. It increases revenues.

Correct Answer:

It does not affect total assets.

Explanation:

Collecting cash on an accounts receivable is simply swapping one asset for another. When the sale was made on credit, accounts receivable was recorded as an asset. When the customer pays, cash increases and accounts receivable decreases by the same amount, so total assets stay the same. Revenue has already been recognized at the time of sale, so receiving cash does not add more revenue. For example, if you collect 5,000, cash rises 5,000 and accounts receivable falls 5,000, leaving total assets unchanged.

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