For the following transaction, identify the type of change that would have occurred in the accounting equation: Assets = Liabilities + Share capital + Opening retained profits + Revenue - Expenses - Dividends
An account for advertising was received. It related to an advertisement appearing on TV in the current accounting period. There was no previous record of the charge.
A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.

Question

Quizplus · Accepted Answer

When an account for advertising is received for services already rendered (the advertisement appearing on TV in the current accounting period), it means the company now owes money for that service, which increases liabilities. At the same time, recognizing the expense of advertising increases the expenses, which decreases the equity (specifically, the retained earnings part of the equation). This is because expenses reduce net income, which in turn reduces retained earnings.

For the Following Transaction, Identify the Type of Change That