Sam's Snow Removal received $500 at the beginning of the winter to cover the fees for the entire winter for cleaning a customer's driveway while they went to Florida for the season.What is the effect of this transaction on the accounting equation?
A)Assets increases by $500 and owners' equity increases by $500.
B)Assets increases by $500 and liabilities increases by $500.
C)Liabilities increases by $500 and owners' equity increases by $500.
D)The increase and decrease in assets offset each other.

Question

Quizplus · Accepted Answer

The $500 received is unearned revenue, which is a liability until the service is performed. Therefore, assets (cash) increase by $500 and liabilities (unearned revenue) increase by $500.

Sam's Snow Removal Received $500 at the Beginning of the Winter