Performing services on account increases the revenue on the income statement and Accounts Receivable on the balance sheet. For the self-check question, the firm's accounting profit is calculated as the difference between total revenue and explicit costs, yielding a profit of $50,000.
When Carmen's Construction performed services worth $5,500 on account, this transaction increased their revenues on the income statement by $5,500 without immediately affecting their cash flow since the services were performed on account, meaning payment will be received at a later date.
Consequently, on their balance sheet, Accounts Receivable would increase by $5,500, representing money owed to them by clients, and their Equity would also increase by the same amount because of the revenue earned, impacting the Owner's Equity section under retained earnings.
Referring to the self-check question provided, the accounting profit for the given firm is calculated by subtracting explicit costs (sum of labor, capital, and materials costs) from total revenues. So, for the firm with $1 million in sales revenue and $950,000 in total explicit costs ($600,000 labor + $150,000 capital + $200,000 materials), their accounting profit would be $50,000.