Question

When a company performs a service and immediately collects the cash from the customer, which of the following would occur?

a) Assets would decrease.
b) Expenses would decrease.
c) Net income would increase.
d) Shareholders' equity would decrease.

Answer 1

Performing a service and collecting cash increases net income because it increases both assets and equity without affecting expenses.

Step-by-step explanation:

When a company performs a service and immediately collects the cash from the customer, c) Net income would increase. This is because the company has rendered services and received payment, which leads to an increase in assets (cash) and an increase in equity (retained earnings). No expenses are decreased; instead, revenue has increased, which increases net income, a component of shareholders' equity.