Jane is an accountant operating as a sole proprietor. On 1 February she does some work for a client on credit who she invoices for $120. Which of the following represents the effect of this transaction on the accounting equation?
A) Increase in cash at bank $120; decrease in liability accounts payable $120.
B) Increase in equity $120; increase in liability accounts payable $120.
C) Increase in asset accounts receivable $120; increase in equity $120.
D) Increase in cash at bank $120; increase in equity $120.

Question

Quizplus · Accepted Answer

Since Jane did some work for a client on credit and invoiced $120, this transaction increases her accounts receivable (an asset account) by $120. At the same time, she has earned revenue of $120 which increases her equity. Therefore, option (C) is the correct answer. Option (A) is incorrect because there is no increase in cash at bank; the transaction is on credit. Option (B) is incorrect because there is no increase in equity without an associated earning. Option (D) is incorrect because there is no increase in cash at bank.

Jane Is an Accountant Operating as a Sole Proprietor