X&Y Co.received $4,000 in payments from clients for services billed in a previous month.What effect does this transaction have on the accounts under the accrual basis of accounting?
A) Total assets increase by $4,000.
B) Assets will increase by $4,000 and revenues will increase $4,000.
C) Total assets will be decrease by $4,000.
D) The net effect on assets is zero.

Question

Quizplus · Accepted Answer

Under the accrual basis of accounting, revenues are recognized when earned, not when cash is received. Since the services were billed in a previous month, the revenue was already recognized at that time. The $4,000 payment simply converts one asset (accounts receivable) into another (cash), leaving the total assets unchanged.

X&Y Coreceived $4,000 in Payments from Clients for Services Billed in in a Previous