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15 July, 21:36

Boone's Cleaning Service performed cleaning services during December 2014, but had not collected any cash from its

customers as of December 31, 2014. What impact did performing these services have on the accounting equation?

A. The service increased assets and increased liabilities.

B. The service increased assets and increased stockholders' equity.

C. The service increased assets and decreased stockholders' equity.

D. The service decreased liabilities and decreased stockholders' equity

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Answers (1)
  1. 15 July, 22:32
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    B. The service increased assets and increased stockholders' equity.

    Explanation:

    Revenue is earned as immediately the service agreed by the parties involved has been delivered whether cash has been collected or not.

    The accounting equation shows the relationship between the elements of the balance sheet namely the assets, liabilities and equity.

    Given that Boone's Cleaning Service performed cleaning services during December 2014, but had not collected any cash from its customers as of December 31, 2014, the amount earned is recognized in revenue and accounts receivables as credits and debits respectively.

    The effect of this on the accounting equation is an increase in equity (via revenue earned) and an increase in assets (account receivables)
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