What
would happen if Edelweiss Corporation did some work for a customer in exchange for the customer’s promise to pay $5,000? This requires further explanation; try to follow this logic closely! You already
know that retained earnings is the income of the business that has not been distributed to the owners of
the business. When Edelweiss Corporation earned $5,000 (which they will collect later) by providing a
service to a customer, it can be said that they generated revenue of $5,000. Revenue is the enhancement
to assets resulting from providing goods or services to customers. Revenue will bring about an increase
to
income, and income is added to retained earnings. Can you follow that?
As you examine the balance sheet on the top of the next page, notice that accounts receivable and retained earnings went up by $5,000 each, indicating that the business has more assets and more retained earnings. And, guess what: assets still equal liabilities plus equity.
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