Question

On January 1, ABC sold $30,000 in products to a customer on account. Then on January 10, ABC collected the cash on that account. What is the impact on ABC's accounting equation from the collection of cash on January 10?

Answer 1

Answer:

Collection of Cash on January 10

The Impact on ABC's accounting equation:

The Assets (Cash) will increase by $30,000 and another type of Assets (Accounts Receivable) will decrease by $30,000.

The collection of cash on January 10 does not affect the other side of the accounting equation.

Explanation:

The accounting equation shows that for every transaction, the Assets will be equal to the Liabilities + Owners' Equity.  The explanation is that the financial resources which an entity owns actually belong to either creditors or equity owners in the form of financial obligations (liabilities) or contributed capital plus some parts of the net income over the years which the entity has reinvested in its business.

The accounting equation is the fulcrum of the double-entry accounting system.  On a company's balance sheet, the accounting equation shows that assets equal the sum of the company's liabilities and shareholders' equity.