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During a recent week, McMunn Legal Services received $25,000 cash from clients for services performed with a total value of $75,000. The balance is to be received within 30 days.
-The effect on the Statement of Financial Position equation for this transaction would be
A)+ $25,000 cash = - $50,000 accounts payable + $75,000 retained earnings.
B)+ $25,000 cash - $50,000 accounts receivable = $75,000 retained earnings.
C)+ $25,000 cash + $50,000 accounts receivable = + $75,000 retained earnings.
D)+ $25,000 cash = + $25,000 retained earnings.

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Quizplus · Accepted Answer

The correct answer is C because the company received $25,000 in cash and still has $50,000 to be received (accounts receivable), which together make up the $75,000 in services performed. This increases retained earnings by $75,000, reflecting the total value of services provided.

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