Collection of a $1,000 Accounts Receivable A. decreases a liability $1,000; increases stockholders' equity $1,000. B. has no effect on total assets. C. increases an asset $1,000; decreases stockholder's equity $1,000. D. increases an asset $1,000; decreases a liability $1,000.

Question

Business

Big Bird

11 June, 12:18

Collection of a $1,000 Accounts Receivable A. decreases a liability $1,000; increases stockholders' equity $1,000. B. has no effect on total assets. C. increases an asset $1,000; decreases stockholder's equity $1,000. D. increases an asset $1,000; decreases a liability $1,000.

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Answers (2)

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Gretta · Answer 1

B) has no effect on total assets.

Explanation:

When an account receivable is collected, the following journal entry should be made:

Dr Cash 1,000

Cr Accounts receivable 1,000

Since both cash and accounts receivable are current assets, that transaction doesn't affect liabilities or equity, and doesn't change total assets either. Cash will increase while accounts receivable will decrease.

Blevins · Answer 2

B. has no effect on total assets.

Explanation:

Both cash and accounts receivable are assets. When a sale is made on credit, the entries required are debit accounts receivable and credit revenue.

On receipt of cash, debit cash and credit accounts receivable.

Hence the collection of a $1,000 Accounts Receivable will have no effect on total assets as one asset was credited (a reduction) while the other was debited (an increase) by the same amount.