When a business provides services for cash, which elements of the accounting equation are affected?

Accounting Dec 16, 2020

Expert Solution

Basic accounting equation is Assets = Liabilities + Stockholders' Equity

When a business provides services for cash, the elements of the accounting equation that are affected are Assets and Stockholders' Equity.

The journal entry for this transaction is as follows:

Account	Debit	Credit
Cash	XXX
Service revenue		XXX

The cash account is a component of the total assets, and a debit to this account represents an increase. Service Revenue is a revenue account which would eventually be closed to the Retained Earnings account. Retained Earnings account is a component of the total stockholders' equity, and a debit to this account represents a decrease, while a credit represents an increase.

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