Question

The following accounts, in alphabetical order, were selected from recent financial statements of Krispy Kreme Doughnuts, Inc.

For each account, indicate whether the normal balance is a debit or a credit, and the financial statement—balance sheet or income statement—where the account should be presented.

Account		Normal Balance		Financial statement
Accounts payable		select between debit and credit Credit Debit		select between balance sheet and income statement Balance sheet Income statement
Accounts receivable		select between debit and credit Credit Debit		select between balance sheet and income statement Balance sheet Income statement
Common stock		select between debit and credit Debit Credit		select between balance sheet and income statement Income statement Balance sheet
Depreciation expense		select between debit and credit Debit Credit		select between balance sheet and income statement Income statement Balance sheet
Interest expense		select between debit and credit Debit Credit		select between balance sheet and income statement Income statement Balance sheet
Interest income		select between debit and credit Credit Debit		select between balance sheet and income statement Income statement Balance sheet
Inventories		select between debit and credit Debit Credit		select between balance sheet and income statement Balance sheet Income statement
Prepaid expenses		select between debit and credit Credit Debit		select between balance sheet and income statement Income statement Balance sheet
Property and equipment		select between debit and credit Credit Debit		select between balance sheet and income statement Balance sheet Income statement
Revenues		select between debit and credit Credit Debit		select between balance sheet and income statement Balance sheet Income statement

If a company receives cash from a customer before performing services for the customer, then

A.	assets decrease and liabilities increase.

B.	assets increase and liabilities increase.

C.	assets increase and liabilities decrease.

D.	assets increase and stockholders' equity increases.

Answer 1

Account		Normal Balance		Financial statement
Accounts payable		Credit		Balance sheet
Accounts receivable		Debit		Balance sheet
Common stock		Credit		Balance sheet
Depreciation expense		Debit		Income statement
Interest expense		Debit		Income statement
Interest income		Credit		Income statement
Inventories		Debit		Balance sheet
Prepaid expenses		Debit		Balance sheet
Property and equipment		Debit		Balance sheet
Revenues		Credit		Income statement

.

Answer: Option B) Assets increases and Liabilities increases.

Explanation:

If a company receives cash from a customer before performing services for the customer, then Assets increases and Liabilities increases.

To received cash in advance the cash balance increases in assets side..

To received cash without performing services we considered it is a unearned revenue, So the unearned revenue increases in liabilities side..

Thus, the option B) is correct answer and remaining given options are incorrect.