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1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

Which of the following best describes the effect on the accounting equation when a company records a journal entry that debits Cash and credits Service Revenue?

Assets increase; Equity increases

Assets decrease; Liabilities increase

Assets decrease; Equity decreases

Assets increase; Liabilities decrease

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Verified step by step guidance

Understand the accounting equation: Assets = Liabilities + Equity. This equation must always remain balanced.

Analyze the journal entry: Debiting Cash increases the Cash account, which is an asset. Therefore, Assets increase.

Next, consider the credit to Service Revenue. Service Revenue is part of Equity because it contributes to retained earnings. Crediting Service Revenue increases Equity.

Determine the overall effect: Since Cash (an Asset) increases and Service Revenue (part of Equity) increases, the accounting equation remains balanced.

Conclude that the correct description of the effect on the accounting equation is: 'Assets increase; Equity increases.'