Question

Knomark, Inc. sold $500 of shoe polish to a customer on account on January 1. On January 11 Knomark collected the cash from that customer. What is the impact on Knomark's accounting equation from the collection of cash?A. No net effect to the accounting equation.B. Decrease assets and increase liabilities.C. Increase assets and increase liabilities.D. Decrease assets and decrease liabilities.

Answer 1

Answer:

A. No net effect to the accounting equation

Explanation:

The reason is that on January 1 Knomark recognized an "Accounts Receivable" which is an asset and on January 11 it is just converted into another asset which is "Cash"

The journal entry would look like this on January 11:

(DR) Cash     $500

(CR)     Accounts Receivable     $500

The Accounts receivable is credited thus decreasing the Assets

BUT the cash is debited at the same time which increases the Assets

In effect, there is NO net effect to the Assets and to the accounting equation as a whole.