What is the effect on the statement of financial position when the business buys a car for $35,000, paying a deposit of $10,000 and promising to pay the balance within 60 days?
A)Increase asset vehicle by $5,000; decrease asset bank by $5,000.
B)Increase asset vehicle by $35,000; decrease asset bank by $10,000; increase liability accounts payable by $25,000.
C)Increase asset vehicle by $25,000; decrease asset bank by $5,000; increase liability accounts payable by $20,000.
D)None of the above.

Question

Quizplus · Accepted Answer

When the business buys a car for $35,000, paying a deposit of $10,000 and promising to pay the balance within 60 days, it results in an increase in an asset account (vehicle) by $35,000 and a decrease in another asset account (bank) by $10,000. Additionally, it creates a liability account of accounts payable, which increases by the value of the balance payment, which is $25,000. Hence, option B is the right choice.

What Is the Effect on the Statement of Financial Position