Question

Gomex Company collected $600 of its $12,000 accounts receivable. How is the balance sheet affected?A. Cash increased $600, and Retained Earnings increased $600 because revenue was received.B. Accounts Receivable is decreased by $600, and Retained Earnings is decreased by $600.C. Total assets are decreased, but liabilities and stockholders’ equity remain the same.D. There is no change in total assets, liabilities, or stockholders’ equity.E. There is no change in any of the balance sheet items.

Answer 1

Answer:

(D). There's no change in total assets, liabilities, or stockholder's equity.

Explanation:

Whenever, payment is received in cash from accounts receivables, the following journal entry is passed:

Cash A/C                                            Dr. $600

     To Accounts Receivables A/C                    $600

(Being collection from accounts receivables recorded)

Implication: The Implication of this transaction being, Cash (an asset) balance gets increased by the same amount as by which accounts receivables (an asset) account balance is reduced i.e $600 here.

The net effect of this transaction on the assets side would be nil as the reduction in accounts receivables balance is offset by a corresponding increase in cash balance.

The position of total assets will remain unchanged as both cash and accounts receivables appear on the asset side of the balance sheet.

Thus, the correct answer is (D) i.e There is no change in total assets,liabilities, or stockholder's equity.