On August 15,a customer paid $5,000 for services provided a month earlier.The customer was billed on August 1.How does this transaction affect the accounting equation?
A)Add $5,000 to Cash and add $5,000 to Service Revenue.
B)Add $5,000 to Cash and add $5,000 to Retained Earnings.
C)Add $5,000 to Cash and subtract $5,000 from Accounts Receivable.
D)Add $5,000 to Accounts Payable and add $5,000 to Cash.

Question

Quizplus · Accepted Answer

Since the customer paid for services already provided, the amount owed to the company (Accounts Receivable) decreases, resulting in a debit of $5,000. At the same time, Cash is increased by $5,000 when the payment is received. Therefore, the transaction results in a $5,000 debit to Cash and a $5,000 credit to Accounts Receivable, which is reflected in the accounting equation as a net increase to assets of $5,000.

On August 15,a Customer Paid $5,000 for Services Provided a Month