Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 38 - No. 37)

If a company receives cash in advance for services yet to be performed, what is the effect on the accounting equation?

Assets increase, Liabilities increase

Assets increase, Equity increases

Assets decrease, Liabilities decrease

Assets decrease, Equity decreases

Receiving cash increases the company's cash (an asset), and the obligation to provide the service creates a liability (unearned revenue).