Question

Amelia Consulting Services collected $12,000 cash for services to be provided in the future. Which of the following shows how recognizing the cash receipt will affect the company's accounting equation?

1) Assets = Liabilities + Stockholders' Equity
2) Cash Prepaid Rent Unearned Revenue Common Stock Retained Earnings
3) 12,000 12,000
4) (12,000) 12,000

Answer 1

The correct impact of recognizing a $12,000 cash receipt for future services on Amelia Consulting Services' accounting equation is an increase in both assets (cash) and liabilities (unearned revenue) by $12,000.Therefore, option 3 is the correct answer: 3) 12,000 12,000, showing that the cash asset and the unearned revenue liability both increase by $12,000.

Step-by-step explanation:

The question relates to the recognition of cash received in advance for services to be provided in the future, affecting a company's accounting equation. When Amelia Consulting Services collects $12,000 cash for future services, the accounting equation is impacted as follows: Assets = Liabilities + Stockholders' Equity. To represent this transaction, cash increases by $12,000, which increases assets, and an equal amount is recorded under liabilities as unearned revenue, specifically Unearned Revenue.

The correct journal entry to reflect this transaction would be to debit Cash (an asset account) for $12,000 and credit Unearned Revenue (a liability account) for $12,000.