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Franklin Lighting Corp
Franklin Lighting Corp. provided energy consulting services and billed the client $2,500. As a result of this event:
a. Only liabilities increased by $2,500.
b. Only assets increased by $2,500.
c. Assets and stockholders' equity each increased by $2,500.
d. Only stockholders' equity increased by $2,500.
e. Assets, liabilities, and stockholders' equity each increased by $2,500.
Expert Solution
Answer: c. Assets and stockholders' equity each increased by $2,500.
Billing the client for services performed will result to the following journal entry:
| Accounts | Debit | Credit |
|---|---|---|
| Accounts Receivable | $2,500 | |
| Revenue | $2,500 |
Accounts Receivable is an asset account, and a debit to this account increases it. Revenue on the other hand is an income statement account which is closed to the Retained Earnings account at the end of the accounting period. Retained Earnings account is a stockholders' equity account which will increase upon closing of the revenue account.
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