A novelties company makes cash sales to customers. What effect does this transaction have on the accounting equation?

Question

Quizplus · Accepted Answer

Cash sales increase the company's assets (cash) and also increase its retained earnings (through revenue earned). Therefore, both assets and retained earnings increase, leading to option C being the correct answer. Options A and B are incorrect as liabilities are not affected by cash sales. Option D is incorrect as it implies that two asset accounts are being affected, whereas only one asset account (cash) is affected.

A Novelties Company Makes Cash Sales to Customers