Which of the following statements best describes the effects of recognizing revenue earned by a business entity?
A)Assets increase only when cash sales are made.
B)Stockholders' equity increases only when credit sales are made.
C)Assets and stockholders' equity increase when either cash or credit sales are made.
D)Assets increase,but stockholders' equity decreases,when either cash or credit sales are made.

Question

Quizplus · Accepted Answer

Recognizing revenue increases both assets (through an increase in cash or accounts receivable) and stockholders' equity (through an increase in retained earnings). This occurs regardless of whether the sale was made for cash or on credit. Option A is incorrect because assets can also increase through accounts receivable. Option B is incorrect because stockholders' equity can increase through cash sales as well. Option D is incorrect because revenue recognition should not affect stockholders' equity negatively.

Which of the Following Statements Best Describes the Effects of Recognizing