A company that uses the accrual method of accounting started the fiscal year with assets of $600,000 and liabilities of $400,000. During the fiscal year the company recorded credit sales of $250,000, of which $8,000 remained to be collected at year end, and incurred expenses of $90,000, of which $72,000 was paid in cash. A stock dividend valued at $10,000 was declared and issued to stockholders during the year. What is the year-end balance of total equity?

	$350,000
	$360,000
	$370,000
	$380,000

You Answered Correctly! (Answer is B, $360,000)

Correct! The company's beginning equity is $200,000 ($600,000 of assets $400,000 of liabilities). The current year accrual basis earnings are $160,000 ($250,000 revenue $90,000 expenses). The ending equity is $360,000 which is the beginning balance of $200,000 plus the current year earnings of $160,000.

For this question why isn't the $8,000 remaining to be collected at year end deducted from the $250,000 credit sales and the $72,000 paid in cash deducted from the $90,000 expenses incurred when computing the year end balance of total equity? Please help because I'm not understanding why nothing is done to the $8,000 and $72,000 for this problem.