Question

If a company receives $12,200 from a client for services provided, what would be the effect on the accounting equation?

1) Assets increase by $12,200 and liabilities decrease by $12,200
2) Assets decrease by $12,200 and liabilities increase by $12,200
3) Assets increase by $12,200 and equity increases by $12,200
4) Assets decrease by $12,200 and equity decreases by $12,200

Answer 1

When a company receives payment from a client, both the assets and equity of the company increase.

This correct answer is option 3)

Step-by-step explanation:

When a company receives $12,200 from a client for services provided, it would increase both the assets and equity of the company. This is because assets represent what the company owns, and receiving money from a client increases the company's cash assets.

Additionally, equity represents the owner's claim on the company's assets, and receiving payment from a client increases the equity as well.

The effect on the accounting equation would be that assets increase by $12,200 and equity increases by $12,200. Therefore, option 3) Assets increase by $12,200 and equity increases by $12,200 is the correct answer.

This correct answer is option 3)