Question

2. Listed below are three reasons why a transaction would not yield a revenue. Match each of the reasons to the transaction it properly describes. Transaction ces Reason This transaction changed the form of an asset from a receivable to cash. Total assets were not increased (revenue was recognized when the services were originally provided) This transaction brought in cash (increased assets), but it also increased a liability by the same amount (no goods or services were provided to generate revenue). This transaction brought in cash, but this is an owner investment. This transaction brought in cash, but it created a liability because the services have not yet been provided to the client.

Answer 1

Answer to first question in the list: Reason This transaction changed the form of an asset from a accounts receivable to cash. Total assets were not increased (revenue was recognized when the services were originally provided). This transaction brought in cash (increased assets) but it also increased a liability by the same amount (no goods or services were provided to generate revenue) This transaction brought in cash but this is an owener investment This transaction brought in cash, but it created a liability because the services have not yet been provided to the client Transaction Cash collected on account (from accounts receivable) Cash borrowed from banks or by issuing note payable Capital stock issued Advance received from customers (Unearned Revenue) Explanation: For a business, revenue is said to be generated when the firm sells goods or renders services with the objective of earning profit or even without the motive of earning profit in case of not-for-profit organization but it must satisfy a condition that the ownership of the goods being dealt with is transferred from one person (seller) to the another person (buyer). For transaction-(a), sales or services were provided on account earlier and payment for the same is collected at later date. So, no revenue is generated on the collection date. So, clue for revenue generation is not present. For transaction-(b), firm just borrows cash from bank or by issuing note payable. As a result, cash account will increase and liability will increase to the same extent. Clue for revenue generation is not present. For transaction-(c), firm collects cash from its owners towards capital investment. Firm's cash will increase and owner's equity will increase to the same extent. Clue for revenue generation is not present. For transaction-(d), firm collects cash from its customers but goods or services for the same will be provided at future date only. As a result, revenue will be generated in future date only. Therefore, clue for revenue generation is not present when advance was collected by the firm.