Final answer:
The transaction where John received $350 for delivery services results in an Increase in Assets and Increase in Equity; thus, option 1) is correct. This reflects the increased cash and the revenue added to owner's equity or retained earnings in the accounting equation.
Step-by-step explanation:
When John received $350 for delivery services, this transaction increased both Cash and revenue in his accounting records. The effect of this transaction on the accounting equation is an Increase in Assets (due to more cash) and an Increase in Equity (due to increased revenue). Therefore, the correct option is 1) Increase in Assets and Increase in Equity.
Understanding the Accounting Equation
The accounting equation is fundamental in double-entry bookkeeping, where every financial transaction affects at least two accounts. The equation states that Assets = Liabilities + Equity. When a company earns revenue, the cash or accounts receivable (an asset) increase while simultaneously increasing the owner's equity (if the business is a sole proprietorship or partnership) or retained earnings (if incorporated). No liabilities are created in a simple revenue transaction, hence equity increases.
Application to the Transaction
In summary, this transaction resulted in John's business having more cash on hand (asset) and recording earned revenue (which gets added to equity). There is no effect on liabilities for this particular transaction.