Question

Powers Corporation received a cash advance of $500 from a customer. As a result of this event, what are the effects on the accounting equation and financial statements?

Answer 1

A cash advance of $500 to Powers Corporation increases both assets and liabilities by $500 in the accounting equation and the balance sheet, specifically under Cash and Unearned Revenue.

Step-by-step explanation:

When Powers Corporation receives a cash advance of $500 from a customer, this transaction impacts both the balance sheet (part of the financial statements) and the accounting equation. The accounting equation, Assets = Liabilities + Owner's Equity, is affected as follows:

• Assets increase due to the cash received.
• Liabilities increase due to the advance received, which is a liability until the service or product is delivered.

In the financial statements, specifically the balance sheet, Cash (an asset) increases by $500, and Unearned Revenue (a liability) also increases by $500.