On August 1,2012,Genuine Services accepted a $6,000 advance payment from a customer for services to be provided in the future.The contract requires the company to review operations at each of the customer's six locations over the next six months.What is the impact on the accounting equation of recording this transaction on August 1st?

Question

Quizplus · Accepted Answer

Recording the advance payment increases the assets side of the accounting equation as cash is received, and it also increases the liabilities side as the company owes the customer services in the future. Specifically, the cash account increases by $6,000 (asset), and the deferred revenue account increases by $6,000 (liability). Therefore, both assets and liabilities increase.

On August 1,2012,Genuine Services Accepted a $6,000 Advance Payment from a Customer