Your company received payment last month for a service that you provided this month. How will the business activity of the current month affect the basic accounting equation?
A) Assets will not change; liabilities (Unearned Revenue) will decrease; and stockholders' equity (Service Revenue) will increase.
B) Assets (Cash) will increase, liabilities (Unearned Revenue) will increase, and stockholders' equity will not change.
C) Assets (Cash) will increase, liabilities will not change, and stockholders' equity (Service Revenue) will increase.
D) Assets (Prepaid Expenses) will decrease, liabilities will not change, and stockholders' equity (Service

Question

Quizplus · Accepted Answer

Since the payment was received in the previous month, the current month's activity will involve recognizing the revenue earned from the service provided. This will increase stockholders' equity by the amount of the service revenue. At the same time, the unearned revenue liability will decrease since the service has now been provided. The other options do not reflect the proper accounting treatment for this scenario.

Your Company Received Payment Last Month for a Service That