Jane is an accountant operating as a sole proprietor. On 1 February she does some work for a client who pays her $320 in cash. Which of the following represents the effect of this transaction on the accounting equation?
A) Increase in cash at bank $320; decrease in liability accounts payable $320.
B) Increase in cash at bank $320; increase in equity $320.
C) Increase in cash at bank $320; increase in asset accounts receivable $320.
D) Increase in cash at bank $320; increase in liability accounts payable $320.

Question

Quizplus · Accepted Answer

Since Jane is a sole proprietor, any income she earns increases her equity. Thus, the transaction would increase Jane's cash at bank by $320 and her equity by $320. There is no change in liability or accounts receivable in this transaction.

Jane Is an Accountant Operating as a Sole Proprietor