Question

When revenue is earned, what is the effect and the direction of the effect on the balance sheet? increases assets, decreases stockholders' equity decreases assets, increases liabilities increases one asset decreases another asset increases assets, increases stockholders' equity

Answer 1

Sol Let us answer question after understanding accounting entry The accounting entry for Revenue Earned Debited Accounts Receivable a/c To Revenue a/c Credited Effect of above accounting entry Accounts Receivable is an Asset and which will shown under asset side of balancesheet, hence this will increase Asset Balance Revenue account will go to Profit and Loss account resulting Increase in Profit Loss account balance. Profit loss account balance is part of Stock Holders Equity, hence this will increase Stock Holders equity Multiple Options Increase Assets, Decrease Stock Holders Equity Decrease Assets, Increase Liabilities Increase one Assets, Decrease another Asset Increase Assets, Increase Stock Holders Equity Correct/ Incorrect Incorrect Incorrect Incorrect Correct Explanation First part asset increase is correct but decrease stock holders equity is incorrect First part asset Decrease is incorrect and also increase in Liability is incorrect First part asset increase is correct but it does not decrease others asset, hence incorrect As it increase Asset and Stock Holders Equity is a correct Answer