To maintain balance sheet equality, it is necessary to report every event and transaction in a dual manner. If a transaction results in an increase in a Liability account, then which of the following must occur, to maintain the balance sheet equation?
A)decrease another liability.
B)decrease shareholders' equity.
C)increase an asset.
D)all of the above will maintain the balance sheet equation
E)none of the above

Question

Quizplus · Accepted Answer

The balance sheet equation must always balance, so if a liability increases, it can be balanced by decreasing another liability, decreasing shareholders' equity, or increasing an asset. All these actions maintain the balance sheet equation.

To Maintain Balance Sheet Equality, It Is Necessary to Report