Question

During March, the Meade Consulting Corporation provides $23,000 in consulting services of which $12,000 is collected immediately and $11,000 is on account. The effects of this transaction on Meade Consulting Corporation’s accounts are:

a. Cash increases by $12,000; Accounts Receivable increases by $11,000; Revenue increases by $23,000.

b. Cash increases by $12,000; Unearned Revenue increases by $11,000; Revenue increases by $23,000

c. Accounts Receivable increases by $11,000; Revenue increases by $12,000; Contributed capital increases by $1,000

d. Accounts Receivable increases by $12,000; Accounts Payable increases by $11,000; Revenue increases by $1,000

Answer 1

Cash accounts increased by $12,000 and Accounts Receivable by $11,000 because Meade Consulting provided $23,000 worth of services, receiving part in cash and the rest on credit. The total Revenue also goes up by $23,000. This reflects the company's income statement and balance sheet.

Step-by-step explanation:

a. Cash increases by $12,000; Accounts Receivable increases by $11,000; Revenue increases by $23,000.

Meade Consulting Corporation provided consulting services worth $23,000, out of which $12,000 was collected in cash immediately. This causes the cash account to increase by $12,000, which is reflected in the company's balance sheet. The remaining $11,000 worth of services provided were not paid for immediately and were considered to be on account.

This means that the clients owe this amount to the company, which is recorded as an increase of $11,000 in Accounts Receivable. Alongside these changes, the total revenue for the consulting services is recorded at $23,000. Revenues increase when services are rendered, regardless of whether the payment is collected immediately or will be collected in the future. Thus, the revenue account increases by the total value of the services provided. The income statement will reflect this $23,000 increase in revenue, while the balance sheet will show a $12,000 increase in cash and an $11,000 increase in accounts receivable.