Atkins Company collected $1,750 as payment for the amount owed by a customer fro

Question

Atkins Company collected $1,750 as payment for the amount owed by a customer from services provided the prior month on credit. How does this transaction affect the accounting equation for Atkins?

Assets would decrease $1,750 and liabilities would decrease $1,750.

One asset would increase $1,750 and a different asset would decrease $1,750, causing no effect.

Assets would increase $1,750 and equity would increase $1,750.

Assets would increase $1,750 and liabilities would increase $1,750.

Liabilities would decrease $1,750 and equity would increase $1,750.

Explanation / Answer

The correct answer is "One asset would increase $1,750 and a different asset would decrease $1,750, causing no effect"

Since cash $1,750 is received now, the balance in the cash account will be increased by $1,750 and the accounts receivable a/c which was debited earlier will be credited with the amount of cash received. This results in the decrease of accounts receivable a/c by $1,750.

Thus one asset account (cash a/c) will be increased and the other asset account(accounts receivable a/c) will be decreased. Since both increase and decrease are on the same side (i.e. assets side), there will be no effect on the accounting equation.

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