Question

Assume that a company earned $100 of service revenue from a client, but only $30 was collected. What will be the impact on the accounting equation? a) Assets will decrease by $100

b) Assets will decrease by $30
c) Assets will remain unchanged
d) Assets will increase by $100

Answer 1

The impact on the accounting equation will be that assets will decrease by $100.

Step-by-step explanation:

The impact on the accounting equation will be that assets will decrease by $100.

In the accounting equation, assets = liabilities + owner's equity. When the company earns $100 of service revenue from a client, it increases both revenue (which is part of owner's equity) and accounts receivable (which is part of assets).

However, when only $30 is collected, it means that the company has reduced its accounts receivable by $30, resulting in a decrease in assets. The remaining $70 ($100 - $30) would still be recorded as accounts receivable.