Do either of the two sales affect liabilities?

• A. Yes, both increase liabilities
• B. Yes, the credit card sale increases liabilities
• C. No, neither affects liabilities
• D. Only the cash sale increases liabilities

Answer: (C)

When a sale happens, the primary impact is on what you own and what you’ve earned. A cash sale puts cash into the business, so assets rise and revenue (which increases equity) is recorded. A sale charged to a credit card typically increases either cash or a receivable from the card processor and also increases revenue. In both cases you’re creating or increasing assets and recognizing revenue, not adding a new obligation to pay someone else. Liabilities would only rise if the transaction involved an obligation like unearned revenue or a tax payable, which isn’t the case for these straightforward cash or card sales. So, neither sale affects liabilities.