Question

Determine the effect of the listed transactions of Nikea Inc. on the accounting equation. Nikea Inc. provided advisory services to XYZ Inc. in May 2013. Nikea billed XYZ for $10,000 in the same month (May). The sales invoice shows that the amount will be due in June.

A. In May 2013, Nikea recorded the transaction by debiting accounts receivable for $10,000 and crediting service revenues for $10,000. What is the effect of this entry on the accounting equation?

Answer 1

Determination of effect of the listed transactions of Nikea Inc. on the accounting equation:

It is given that In May 2013, Nikea recorded the transaction by debiting accounts receivable for $10,000 and crediting service revenues for $10,000.

Accounts receivable is an asset and debiting assets means increasing the asset. A Service revenue is part of equity and crediting the revenue means increasing the equity.

Hence we can say that this transaction as increased the assets and equity of Nikea Inc.