Question

During March, the Long Life Consulting Company provides $23,000 in consulting services of which $12,000 is immediately paid for and $11,000 is on account.

A.Cash increases $12,000, revenue increases $11,000, and contributed capital increases $23,000.
B.Cash increases $12,000, Accounts Receivable increases $11,000, and revenues increase $23,000.
C.Accounts Receivable increases $11,000, liabilities decrease $12,000, and stockholders' equity decreases $1,000.
D.Revenues increase $12,000, liabilities decrease $12,000, and stockholders' equity is unchanged.

Answer 1

The correct entry for Long Life Consulting Company's transactions is ( Option b) an increase in cash by $12,000, an increase in Accounts Receivable by $11,000, and an increase in revenues by $23,000. This reflects payment received and services rendered on account.

Step-by-step explanation:

The question is asking about the recording of transactions for Long Life Consulting Company which provided consulting services totaling $23,000, with $12,000 paid immediately and $11,000 on account. The correct answer is option B, which is: Cash increases by $12,000 for the amount received immediately, Accounts Receivable increases by $11,000 for the amount charged on account to clients who will pay in the future, and revenues increase by $23,000 to reflect the total value of the consulting services provided.

To further clarify using the self-check question provided as a reference: A firm's accounting profit is calculated by subtracting explicit costs from total revenues. In the example given, if a firm had sales revenue of $1 million and spent a total of $950,000 on labor, capital, and materials, the accounting profit would be $50,000. This is similar to how Long Life Consulting Company would record its revenue and receivables.