Question

Atkins Company collected $1,750 as payment for the amount owed by a customer from services provided the prior month on credit. How does this transaction affect the accounting equation for Atkins?A. Assets would decrease $1,750 and liabilities would decrease $1,750.B. One asset would increase $1,750 and a different asset would decrease $1,750, causing no effect.C. Assets would increase $1,750 and liabilities would increase $1,750.D. Assets would increase $1,750 and equity would increase $1,750.E. Liabilities would decrease $1,750 and equity would increase $1,750.

Answer 1

Answer: B. One asset would increase $1,750 and a different asset would decrease $1,750, causing no effect

Explanation:

From the information given in the question, the journal entry at the time of sales will be represented as:

Debit Accounts receivable $1,750

Credit Sales $1750

Now, when the credit receipt is received as illustrated in the question, the journal entry will be:

Debit Cash $1,750

Credit Accounts receivable $1,750

Therefore, one asset would increase $1,750 and a different asset would decrease $1,750, causing no effect.

The correct option is B.