{"id":22566,"date":"2025-06-16T20:00:14","date_gmt":"2025-06-16T20:00:14","guid":{"rendered":"https:\/\/gaviki.com\/blog\/?p=22566"},"modified":"2025-06-16T20:00:16","modified_gmt":"2025-06-16T20:00:16","slug":"when-services-are-provided-on-credit-the-total-amount-of-liabilities-increases","status":"publish","type":"post","link":"https:\/\/gaviki.com\/blog\/when-services-are-provided-on-credit-the-total-amount-of-liabilities-increases\/","title":{"rendered":"When services are provided on credit, the total amount of liabilities increases"},"content":{"rendered":"\n<p>When services are provided on credit, the total amount of liabilities increases. True or False<\/p>\n\n\n\n<p><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-vivid-cyan-blue-color\"><strong>The correct answer and explanation is:<\/strong><\/mark><\/p>\n\n\n\n<p><strong>Answer: False<\/strong><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">Explanation:<\/h3>\n\n\n\n<p>When services are provided on credit, the total amount of <strong>liabilities does not increase<\/strong>; instead, the <strong>assets increase<\/strong>.<\/p>\n\n\n\n<p>Here\u2019s why:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Providing services on credit<\/strong> means the business delivers the service now but expects payment later. This creates an <strong>account receivable<\/strong>\u2014money owed to the business by the customer.<\/li>\n\n\n\n<li>On the accounting equation basis:<br><strong>Assets = Liabilities + Equity<\/strong><\/li>\n\n\n\n<li>When services are provided on credit:\n<ul class=\"wp-block-list\">\n<li><strong>Assets increase<\/strong> because accounts receivable (an asset) goes up.<\/li>\n\n\n\n<li><strong>Equity increases<\/strong> because the revenue from the service increases retained earnings, a component of equity.<\/li>\n\n\n\n<li><strong>Liabilities remain unchanged<\/strong> because no debt or obligation is created by providing the service. The business is owed money but does not owe money to others.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<p><strong>Example:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A consulting company provides a $1,000 service to a client on credit.<\/li>\n\n\n\n<li>The company records:\n<ul class=\"wp-block-list\">\n<li><strong>Debit Accounts Receivable $1,000<\/strong> (increase in assets)<\/li>\n\n\n\n<li><strong>Credit Service Revenue $1,000<\/strong> (increase in equity)<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>No liability is created because the company has not borrowed money or incurred any payable.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Why might one think liabilities increase?<\/h3>\n\n\n\n<p>Sometimes, confusion arises because when a company <strong>purchases goods or services on credit<\/strong>, liabilities increase (accounts payable goes up). But here, the business is the provider, not the purchaser.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Summary:<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Services provided on credit \u2192 Increase assets (accounts receivable) and equity (retained earnings through revenue).<\/li>\n\n\n\n<li>No increase in liabilities occurs.<\/li>\n<\/ul>\n\n\n\n<p>Therefore, the statement that \u201cWhen services are provided on credit, the total amount of liabilities increases\u201d is <strong>False<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>When services are provided on credit, the total amount of liabilities increases. True or False The correct answer and explanation is: Answer: False Explanation: When services are provided on credit, the total amount of liabilities does not increase; instead, the assets increase. Here\u2019s why: Example: Why might one think liabilities increase? Sometimes, confusion arises because [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-22566","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/22566","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=22566"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/22566\/revisions"}],"predecessor-version":[{"id":22567,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/22566\/revisions\/22567"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=22566"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=22566"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=22566"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}