Question
Doug’s Doodle Shop, specializing in dog supplies, signs a contract with a pet groomer.
Next month, the groomer will begin leasing a portion of Doug’s store and provide
grooming services. The signing of the contract:
Multiple Choice
has no effect on the accounting equation.
increases assets.
increases liabilities.
Next month, the groomer will begin leasing a portion of Doug’s store and provide
grooming services. The signing of the contract:
Multiple Choice
has no effect on the accounting equation.
increases assets.
increases liabilities.
Ask by Crawford Blake. in the United States
Jan 26,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
Signing the contract has no effect on the accounting equation.
Solution
To analyze the effects of signing a contract on the accounting equation, we need to consider the implications of the contract itself.
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Understanding the Accounting Equation: The accounting equation is represented as:
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Effects of Signing the Contract:
- Assets: The contract itself does not immediately increase or decrease assets. However, if the groomer begins to lease space, Doug’s Doodle Shop may receive rental income, which could increase cash (an asset) in the future.
- Liabilities: Signing a contract does not create a liability unless there is a specific obligation that requires payment or a future outflow of resources. In this case, the contract is an agreement for services and does not inherently create a liability.
- Equity: The signing of the contract does not directly affect equity either.
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Conclusion: Since the signing of the contract does not immediately affect assets or liabilities, the correct answer is that it has no effect on the accounting equation.
Therefore, the answer is:
- has no effect on the accounting equation.
Answered by UpStudy AI and reviewed by a Professional Tutor
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Explain 
Simplify this solution The Deep Dive
The signing of the contract could be seen as a commitment between Doug’s Doodle Shop and the pet groomer, which doesn’t immediately affect cash or other assets, but it establishes a future leasing relationship that could lead to increased assets and possibly liabilities over time. The initial signing itself might not increase assets or liabilities at that moment, but it does lead to an expectation of future financial transactions.
In a practical sense, Doug could capitalize on this partnership by cross-promoting services to maximize revenue. For example, customers buying dog supplies may be more inclined to take advantage of on-site grooming services, effectively increasing foot traffic and sales for both Doug’s Doodle Shop and the groomer. This collaboration can create a win-win scenario!
