Impact of cash on income statement



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sir , as u have given the example - If you sell a product/service for Rs. 1,000 this month. That Rs.1,000 is recorded in your income statement as revenue (doesn't matter if you got the cash or not). If you got the cash, your cash account in the balance sheet increases. If it was a credit sale, the accounts receivable increases.

In case of getting cash i can understand that shareholders equity wd increase by the same amt as cash belongs to shareholders however in case of account receivable why the shareholders equity wd go up ....is it so bcoz through account receivable u wd get cash bt at a later date ...is my reasoning alright or there is some other reason behind shareholder equity going up ?

1 Answer(s)


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Rohit,

Your reasoning is perfectly accurate. Even though cash is not received today, cash to be received in the future is still an asset. The shareholders own all the assets of a company, hence as accounts receivables increases so does shareholders equity.

This is also clear through the formula: Assets - Liabilities = Shareholders Equity

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