Answer:
The correct answer is C.
Explanation:
Accounts Receivable simply refers to the amount of money owed to a business or an organization by it's debtors.
To make a collection simply means to retrieve some of these debts owed.
- It cannot increase total liabilities because total liabilities is simply the amount of debt owned by a company to it's creditors. So Option A is out of it.
- It has the potential to increase total assets. Total assets refers to the total amount of assets owned by a person or an organization. Assets are items of economic value, which are expended over time to yield a benefit for the owner. The following are examples of assets which can be found in this category:
- Cash
- Marketable securities
- Accounts receivable
- Prepaid expenses
- Inventory
- Fixed assets
- Intangible assets
- Goodwill
- Other assets
Therefore, Option B is not the answer.
- Following from the explanation above, D cannot be the answer.
- Neither is the answer Option E.
- Stockholders' equity is the amount of assets remaining in a business after all liabilities have been settled. Recall that cash is also categorized as an assets.
So when a client pays back a money owed to a business, cash is increased and the accounts receivable is decreased.
The transaction is recorded by debiting the cash account and crediting accounts receivable for exactly the same amount.
Cheers!
