Question

In June, Nikea Inc. received the $10,000 payment from XYZ. Which of Nikea's accounts are affected by this transaction and what is its effect on the accounting equation. What is the effect on XYZ's accounting equation in June when it remitted the $10,000?

Answer 1

The payment from XYZ affects Nikea's cash account and XYZ's accounts payable account. For Nikea, it increases assets and equity, while for XYZ, it decreases liabilities and equity.

Step-by-step explanation:

In this transaction, Nikea Inc. received a $10,000 payment from XYZ. The two main accounts that are affected by this transaction are Nikea Inc.'s cash account and XYZ's accounts payable account.

For Nikea Inc., the $10,000 payment received increases its cash account. So, the effect on Nikea Inc.'s accounting equation is an increase in assets (cash) and an increase in equity (retained earnings or revenue).

For XYZ, the $10,000 payment represents a decrease in its accounts payable liability. So, the effect on XYZ's accounting equation is a decrease in liabilities (accounts payable) and a decrease in equity.