Question

How does a debit to Cash and credit to Accounts Receivable affect the accounting equation?

A. An increase in Assets and another increase in Assets

B. Increase in Assets and an increase in Stockholders' Equity

C. No net change. Assets are both increased and decreased

D. An increase to Assets and an increase in Liabilities

Answer 1

Debit to cash mean that there is cash inflow and thus cash is debited for increase in balance

Credit to accounts receivable mean there is certain collection from customer and thus accounts receivable is credited for decrease in balance.

Option (A) is not correct as cash is increasing and accounts receivable is decreasing

Option (B) is not correct as there would be no impact on stockholder's equity as both are asset account.

Option (D) is not correct as there would be no impact on liabilities as both are asset account.

Increase in cash and decrease in accounts receivable will have no impact on total assets as assets are increasing and decreasing by same amount.

Thus, option (C) is correct answer.