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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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How do revenues and expenses affect the accounting equation?

To determine

Effect on accounting equation

Revenue earned and expenses incurred effects the accounting equation by effecting the Retained earnings balance of Stockholder’s equity on one hand and also the cash balance (if received or paid)/ Accounts receivable balance (for accrued revenue)/ Expenses payable balance (for expenses due) on the other hand.

The effects of revenue and expenses on accounting equation.

Explanation

The effects on accounting equation is as under:

  1. Revenues earned. The revenues earned will the increase the net income of the business which in turn improves the balance of retained earnings as one effect of transaction.
  2. For another effect of same transaction, it needs to be confirmed whether revenues earned has been received or still due to be received. If it has been received, another effect is increasing the cash balance. However, if it is due to be received later, the balance of Accounts receivable account will increase as second effect of transaction...

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