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 (Deferred Revenue)will decrease; and Shareholders' equity (Service Revenue)will increase.
B)Assets (Cash)will increase,liabilities (Deferred Revenue)will increase,and Shareholders' equity will not change.
C)Assets (Cash)will increase,liabilities will not change,and Shareholders' equity (Service Revenue)will increase.
D)Assets (Prepaid Expenses)will decrease,liabilities will not change,and Shareholders' equity (Service Revenue)will increase.

Question

Quizplus · Accepted Answer

Since the payment was received last month for a service provided this month, it means the revenue has been earned but not yet recognized. Therefore, the transaction will result in decreasing the liability (Deferred Revenue) and increasing Shareholders' equity (Service Revenue). Assets will not change as the payment was already received last month.

Your Company Received Payment Last Month for a Service That