Final answer:
The statement is true: receiving cash increases assets, and recording a sales discount reduces revenue and thus decreases equity. Similar financial principles apply to banks, as seen when Singleton Bank lends to Hank's Auto Supply, affecting its balance sheet.
Step-by-step explanation:
The statement that Hanifin is receiving cash, increasing assets, and recording a sales discount which decreases equity is true. When Hanifin receives cash from a customer within the discount period, this indeed causes an increase in assets on the balance sheet. Concurrently, the recognition of a sales discount reduces the revenue from the sale, which in turn decreases equity. This is because equity is calculated as assets minus liabilities; when revenue (an equity component) is decreased due to a sales discount, equity decreases as well.
An Example with Banks and Loans
Looking at an example with banks: When Singleton Bank lends $9 million to Hank's Auto Supply, it records this on the balance sheet as a loan, an asset that will generate interest income. However, instead of handing over cash, Singleton Bank issues a cashier's check. When Hank deposits this at First National, that bank now holds an increased deposit and, per reserve requirements, must keep a portion of this (10%) but can loan out the remainder. Singleton Bank's balance sheet reflects an asset change to include $1 million in reserves and the $9 million loan to Hank's Auto Supply, keeping its total deposits at $10 million.
This scenario also illustrates how lending activities affect a bank's balance sheet. Profits, or in the broader sense, what is owed to shareholders, is indirectly affected by these transactions much like the sales discount affects equity in the initial statement on Hanifin's transaction.