Machinery is purchased on credit. What effect does this transaction have on the accounting equation?
A)Assets and liabilities increase.
B)Assets and stockholders' equity increase.
C)Liabilities increase and stockholders' equity decreases.
D)Assets and liabilities decrease.

Question

Quizplus · Accepted Answer

Purchasing machinery on credit means that the company is acquiring an asset (the machinery) while also taking on a liability (the debt owed to the creditor who extended the credit). This will increase both the assets and liabilities on the company's balance sheet.

Machinery Is Purchased on Credit