Final answer:
The collection of $540 in accounts receivable increases cash and decreases accounts receivable by $540, which does not change total assets but shifts the composition of assets. Liabilities and shareholders' equity remain unchanged, keeping the accounting equation in balance.
Step-by-step explanation:
The question relates to the accounting equation, which states that Assets = Liabilities (L) + Shareholders' Equity (SE). When a company collects $540 in accounts receivable, this means the company is receiving cash from its customers. The collection will increase the company's cash and decrease its accounts receivable by the same amount, $540. Since both cash and accounts receivable are assets, this transaction does not change the total assets. Instead, it just shifts the composition of the assets from one form to another. There is no effect on liabilities or shareholders' equity, so the accounting equation remains in balance.
The effect of collecting $540 in accounts receivable on the financial equation is an increase in Assets and a decrease in Accounts Receivable.Accounts Receivable (AR) is an asset account that represents the amount owed to a business by its customers for goods or services sold on credit. When $540 is collected, it reduces the amount of AR and increases the amount of cash or another asset.Therefore, Assets increase by $540, and Accounts Receivable decrease by $540.