What happens when a client pays $7,000 in cash for professional services rendered?

What happens when a client pays $7,000 in cash for professional services rendered?

• A. Increase assets and increase owner's equity
• B. Increase liabilities and decrease assets
• C. Decrease assets and decrease owner's equity
• D. Decrease assets and increase liabilities

Answer: (A)

When cash is received for services, the business gains an asset (cash) and records revenue, which increases owner’s equity through higher retained earnings. In double-entry terms, you would debit Cash for 7,000 to reflect the cash inflow and credit Service Revenue for 7,000 to recognize the earned income. Because there’s no change to liabilities and no decrease in assets, the net effect is an increase in both assets and owner’s equity.

When cash is received for services, the business gains an asset (cash) and records revenue, which increases owner’s equity through higher retained earnings. In double-entry terms, you would debit Cash for 7,000 to reflect the cash inflow and credit Service Revenue for 7,000 to recognize the earned income. Because there’s no change to liabilities and no decrease in assets, the net effect is an increase in both assets and owner’s equity.