If a company has excess space in its building that it rents to another company for $700, what is the effect on the accounting equation during the first month?
A) Liabilities would decrease $700 and equity would increase $700.
B) Assets would increase $700 and equity would increase $700.
C) Assets would decrease $700 and equity would increase $700.
D) Assets would increase $700 and equity would decrease $700.
E) Assets would decrease $700 and liabilities would decrease $700.

Question

Quizplus · Accepted Answer

Renting out excess space creates a revenue for the company. Revenue increases equity, and since the rent is being paid in cash, the cash balance also increases. Therefore, assets would increase by $700 (cash), and equity would increase by $700 (revenue from rent).

If a Company Has Excess Space in Its Building That