Multiple Choice
Which of the following is an accurate depiction of the fundamental accounting equation?
1. Introduction to Accounting
Fundamental Accounting Equation
Multiple Choice
Providing services to customers for cash would have what effect on the fundamental accounting equation?
A
Increase liabilities and decrease equity
B
Increase assets and increase equity
C
Increase assets and decrease liabilities
D
Decrease assets and increase liabilities
Verified step by step guidance1
Understand the fundamental accounting equation: Assets = Liabilities + Equity. This equation must always remain balanced.
Recognize that providing services to customers for cash means the business is earning revenue and receiving cash, which is an asset.
Revenue earned increases equity because it contributes to the company's retained earnings, a component of equity.
Receiving cash increases assets, specifically the cash account, as the business now has more money.
Conclude that the transaction increases both assets (cash) and equity (retained earnings), while liabilities remain unchanged.
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