Jane is a painting contractor operating as a sole proprietor. On 15 May she completes a job for a client who pays her $1500 in cash. The effect of this transaction on the accounting equation is?
A) Cash at bank increases by $1500; Accounts payable decreases by $1500.
B) Cash at bank increases by $1500; Equity increases by $1500.
C) Cash at bank increases by $1500; Accounts receivable decreases by $1500.
D) Cash at bank increases by $1500; Accounts payable increases by $1500.

Question

Quizplus · Accepted Answer

As a sole proprietor, Jane's equity and personal finances are considered as one. Therefore, receiving cash payment directly impacts her equity account. The increase in cash at bank will be recorded as a debit to the cash account and the corresponding credit will be posted to her equity account. There is no accounts payable or accounts receivable involved in this transaction.

Jane Is a Painting Contractor Operating as a Sole Proprietor