Stanley Company earns $8,000 of revenue on account in Year 1. Cash collections of receivables amount to $4,500 in Year 1 with the remainder being collected in Year 2. Which of the following shows how the recognition of revenue in Year 1 will affect the company's accounting equation?
A)Option A
B)Option B
C)Option C
D)Option D

Question

Stanley Company earns $8,000 of revenue on account in Year 1. Cash collections of receivables amount to $4,500 in Year 1 with the remainder being collected in Year 2. Which of the following shows how the recognition of revenue in Year 1 will affect the company's accounting equation? 
A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

Since revenue was earned on account in Year 1, there will be an increase in both the revenue and accounts receivable accounts. However, only a portion of the accounts receivable balance will be collected in Year 1, resulting in an increase in cash and a decrease in accounts receivable. The end result is an increase in both revenue and cash, and an overall increase in total assets. Option C correctly reflects these changes to the accounting equation.

Stanley Company Earns $8,000 of Revenue on Account in Year