Question

Does the collection of cash that was previously on account have an affect on the accounting equation?

Answer 1

When cash is collected that was previously recorded as a receivable on account, it increases the asset side and decreases the liability side of the accounting equation.

Step-by-step explanation:

When cash is collected that was previously recorded as a receivable on account, it affects the accounting equation in two ways:

1. The asset side of the equation increases because the cash is being collected, which increases the cash balance.
2. The liability side of the equation decreases because the receivable is being paid, which decreases the accounts receivable balance.

Overall, the collection of cash from a previously recorded account receivable increases the asset side of the equation and decreases the liability side, resulting in a balanced equation.