If total liabilities increased by $6,000, then
A) assets must have decreased by $6,000.
B) equity must have increased by $6,000.
C) assets must have increased by $6,000, or equity must have decreased by $6,000.
D) assets and equity each increased by $3,000.

Question

Quizplus · Accepted Answer

An increase in total liabilities can result from either an increase in assets or a decrease in equity. Therefore, the answer cannot be A or B. Since the increase in liabilities is $6,000, either assets must have increased by $6,000 or equity must have decreased by $6,000 to balance the accounting equation. Therefore, the correct answer is C. Option D cannot be correct because it assumes that assets and equity always have an equal increase or decrease, which is not necessarily the case.

If Total Liabilities Increased by $6,000, Then