Which statement describes the effect of performing services for cash?

Which statement describes the effect of performing services for cash?

• A. Cash increases and revenue increases
• B. Cash increases and owner’s equity remains unchanged
• C. Cash decreases and revenue increases
• D. Cash increases and expenses increase

Answer: (C)

When you perform services for cash, you receive money for the work, so cash (an asset) increases. At the same time, you have earned revenue, which increases income and, in turn, owners’ equity through retained earnings. The dual effect is a debit to Cash (increase) and a credit to Revenue (increase). That combination—cash up and revenue up—best describes the transaction. The other statements misstate the impact: revenue affects equity, so it wouldn’t leave owner’s equity unchanged; cash wouldn’t decrease when you’ve just earned and received cash; and performing a service for cash isn’t an expense event.

When you perform services for cash, you receive money for the work, so cash (an asset) increases. At the same time, you have earned revenue, which increases income and, in turn, owners’ equity through retained earnings. The dual effect is a debit to Cash (increase) and a credit to Revenue (increase).

That combination—cash up and revenue up—best describes the transaction. The other statements misstate the impact: revenue affects equity, so it wouldn’t leave owner’s equity unchanged; cash wouldn’t decrease when you’ve just earned and received cash; and performing a service for cash isn’t an expense event.