Question

Beethoven Company provided consulting services and billed the client $3,100. As a result of this event,

A) assets remained unchanged.
B) assets increased by $3,100.
C) stockholders' equity increased by $3,100.
D) assets and stockholders' equity both increased by $3,100.

Answer 1

Billing the client $3,100 increases both the Beethoven Company's assets and stockholders' equity by the same amount. This aligns with the fundamental accounting equation and reflects a claim to cash (an asset) and earnings (equity).

Step-by-step explanation:

When the Beethoven Company billed its client for $3,100 for consulting services provided, there are immediate impacts on the company's financial statements, specifically the balance sheet. The correct answer to how this event affects the company's finances is D) assets and stockholders' equity both increased by $3,100. This is because the billing represents an increase in assets under accounts receivable, signaling that the company now has a claim to this money. Concurrently, the revenue generated via the consulting services contributes to an increase in stockholders' equity, aligning with the accounting equation, which states that Assets = Liabilities + Stockholders' Equity. In simple terms, the action creates an asset for the company that will presumably be turned into cash and increases the equity, reflecting the company's earnings.