Which statement about performing services for cash is true?

Which statement about performing services for cash is true?

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

Answer: (A)

When you perform services for cash, you receive cash, which is an asset, and you earn revenue, which increases owner's equity. The transaction is recorded as a debit to cash (asset up) and a credit to service revenue (revenue increases, which raises net income and thus owner’s equity through retained earnings). There’s no effect on liabilities in this scenario. So the true statement is that assets increase and owner’s equity increases.

When you perform services for cash, you receive cash, which is an asset, and you earn revenue, which increases owner's equity. The transaction is recorded as a debit to cash (asset up) and a credit to service revenue (revenue increases, which raises net income and thus owner’s equity through retained earnings). There’s no effect on liabilities in this scenario. So the true statement is that assets increase and owner’s equity increases.