what effect does revenue have on the accounting equation? course hero

Revenues have an incremental effect on the equation because they increase retained earnings, which ultimately feed into equity. In a financial glossary, "equity," "investor money," "shareholder capital" and "owner capital" mean the same thing. Accounting Equation

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How do revenues affect the accounting equation?

81. What effect does "recognizing revenue at the end of the accounting period for rent previously received in advance" have on the accounting equation for the insurance company? A. Assets increase and liabilities decrease. B. Assets increase and Stockholders' equity increases. C. Assets decrease and liabilities decrease. D.

What is the accounting equation and why is it important?

 · 36. What effect does “recognizing revenue at the end of the accounting period for rent previously received in advance”have on the accounting equation for an insurance company? a. Stockholders’ equity increases and liabilities increase. b. Assets increase and stockholders’ equity increases. c.

Why do revenues have an incremental effect on the equation?

 · What effect does "recognizing revenue at the end of the accounting period for rent previously received in advance" have on the accounting equation for the insurance company? a. Assets increase and liabilities decrease. b. Assets increase and stockholders' equity increases. c. Assets decrease and liabilities decrease. d.

What are the problems with the basic accounting equation?

 · View Test Prep - Exam 2 Practice Exam from ACCTG 230 at Washington State University. exam 2 prep Student: _ 1. A revenue has what effect on the accounting equation? A. Increase liabilities. B.

Why are revenues important in accounting?

At the end of an accounting period -- say, a month, quarter or fiscal year -- financial managers close books and transfer net income into the retained earnings master account, which is an equity item. As a result, higher revenues increase equity and thus the entire accounting equation because income ultimately translates into cash, which is an asset .

What is the basic accounting equation?

The basic accounting equation requires that a company's total assets equal total debts plus total equity. Revenues have an incremental effect on the equation because they increase retained earnings, which ultimately feed into equity. In a financial glossary, "equity," "investor money," "shareholder capital" and "owner capital" mean the same thing.

What is revenue management?

Revenues. Revenues come from the sale of goods, the provision of services and investment gains. Revenue management helps department heads phrase an organization's operational predicament in concrete terms, using prose that salespeople and marketing specialists can understand and work on.

Where does revenue come from?

Revenues come from the sale of goods, the provision of services and investment gains. Revenue management helps department heads phrase an organization's operational predicament in concrete terms, using prose that salespeople and marketing specialists can understand and work on.

Does revenue increase owner's equity?

The earning of revenues causes owner's equity to increase. Although revenues cause owner's equity to increase, the revenue transaction is not recorded into the owner's capital account at this time. Rather, the amount earned is recorded in the revenue account Service Revenues.

What is account receivable?

This right (known as an account receivable) causes assets to increase. The earning of revenues causes owner's equity to increase. Although revenues cause owner's equity to increase, the revenue transaction is not recorded into the owner's capital account at this time.

What is accounting equation?

The Accounting Equation. Accounting is all about balance. Each time we engage in a transaction, there are at least two things that are happening. Usually, we give up something to receive something we need. For example, when you purchase supplies for school, you give up cash in order to get the supplies.

What is revenue expense?

Revenue – Expenses = Profit. Once profits are generated the business can either keep those profits within the company to grow the business or protect against future downturns. The business can also choose to pay those profits out to the owners in the form of dividends or distributions.

Why is accounting based on double entry?

Analyzing transactions in your own life will make the course easier to relate to and increase your understanding of the topic. Because of this give and take , accounting is based on a double entry system. Whenever a transaction is recorded, at least two accounts must be effected. This allows us to remain in balance.

What are assets in accounting?

An asset is something the business owns or has a right to, which can be used to generate future income. Examples of assets include cash, supplies, inventory, vehicles, machinery, equipment, and buildings. This is by no means an exhaustive list and you will spend most of any introductory financial accounting course studying assets.

What is contributed capital?

Contributed capital is the value that the owners have contributed to the business. If you started a business tomorrow and put $1,000 cash plus a computer worth $500, the contributed capital in the business would be $1,500 because that is the amount the owner (you) have contributed.

What is retained earnings?

Retained earnings is the amount of profit (earnings) the business has kept (retained) over the years.

What is a liability in business?

A liability is an obligation that a business has to another person or entity. Typically, we think of liabilities as loans but there are many different types of liabilities a business can incur. For example, when the electric bill comes and the business has 30 days to pay it, that becomes a liability because the business used the electricity and is obligated to pay for it. If a business agrees to do work for a client and the client pays a deposit (puts money down) for work to be completed at a later date, the business has an obligation to complete the work or refund the money.

How Transactions Affect the Accounting Equation

How a transaction impacts the accounting equation depends on the type of the two or more accounts involved (assets, liabilities, or equity). Some transactions don’t affect the accounting equation because they increase and decrease multiple accounts of the same type (e.g., assets).

Question 1

If a transaction decreases the total assets of a business, then the sum of its total liabilities and owner’s equity may or may not decrease depending on the nature of the transaction.