Assume that global cleaning service performed cleaning services for a department store on account for $180. how would this transaction affect global cleaning service's accounting equation?
(a) increase both assets and liabilities by $180
(b) increase both assets and equity by $180
(c) increase both equity and liabilities by $180
(d) decrease liabilities by $180, and increase equity by $180

(B) Increase both assets and equity by $180

Explanation:

The transaction analysis model tells us that:

Assets = Liabilities + Owner's Equity

Owner's equity = Contributed Capital + Retained Earnings

Retained Earnings = Net Income − Dividends

and

Net Income = Income − Expenses

The expanded accounting equation is obtain if all substitutions are made:

Asset = Liabilities + Contributed Capital + Income – Expenses − Dividends

In the Global Cleaning Service`s case:

Assets are increased either because the service is collected or is an account receivable. As the service provided is a revenue (income) is part of the Owner's Equity that also increase. Both, Asset and Owner's Equity, increase in 180.  

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