How does the purchase of equipment on account affect the accounting equation?
A) Assets increase; liabilities decrease.
B) Assets increase; owner's equity increases.
C) Assets increase; liabilities increase.
D) Liabilities increase; owner's equity decreases.

Question

Quizplus · Accepted Answer

When equipment is purchased on account, it means that the payment for the equipment will be made in the future. This increases the company's assets (since they now own the equipment), but it also increases their liabilities (since they now owe the money for the equipment purchase). The accounting equation is Assets = Liabilities + Owner's Equity, so an increase in assets and liabilities will keep the equation in balance.

How Does the Purchase of Equipment on Account Affect the Accounting