Table of contents

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

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

When a company collects cash from accounts receivable, which of the following is the correct effect on the company's financial statements?

Total liabilities decrease.

Total assets remain unchanged.

Total assets increase.

Total equity increases.

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Verified step by step guidance

Understand the nature of accounts receivable: Accounts receivable represent money owed to the company by customers for goods or services already provided. When cash is collected from accounts receivable, it means the company is converting one asset (accounts receivable) into another asset (cash).

Analyze the impact on total assets: Since cash is an asset and accounts receivable is also an asset, the collection of cash does not increase or decrease the total assets. It simply shifts the composition of assets from accounts receivable to cash.

Evaluate the effect on liabilities: Collecting cash from accounts receivable does not involve any changes to liabilities. Liabilities are obligations the company owes to external parties, and this transaction does not affect them.

Assess the impact on equity: Equity represents the residual interest in the assets of the company after deducting liabilities. Since the collection of cash from accounts receivable does not affect total assets or liabilities, equity remains unchanged.

Conclude the correct effect: Based on the analysis, the correct effect on the company's financial statements is that total assets remain unchanged, as the transaction is merely a reclassification within the asset section.