Question

Comstock Company provided consulting services and billed the client $2,500. As a result of this event

a. assets remained unchanged
b. assets increased by $2,500
c. equity increased by $2,500
d. Both assets and equity increased by $2,500

Answer 1

The billing of $2,500 by Comstock Company increases both assets and equity by the same amount. This is according to the accounting equation that balances the increase in assets (accounts receivable or cash) with an increase in owner's equity due to earned revenues.

Step-by-step explanation:

When Comstock Company billed a client $2,500 for consulting services, the company's financial statements are affected as follows:

• Assets increased by $2,500 because the company now has an accounts receivable or cash of $2,500.
• Equity increased by $2,500 because the billing represents earned revenue, which increases the owner's equity in the company.

Therefore, the correct answers are b. assets increased by $2,500 and c. equity increased by $2,500. This simultaneous increase in assets and equity is also reflected in the accounting equation, Assets = Liabilities + Equity, thereby satisfying the double-entry accounting principle - for every debit (increase in assets), there must be a corresponding credit (increase in equity).