When a firm borrows money, one effect on the accounting equation is a(n)
A)decrease in contributed capital.
B)increase in assets.
C)decrease in liabilities.
D)decrease in assets.

Question

Quizplus · Accepted Answer

Borrowing money increases the assets of the company (in the form of cash or other assets purchased with the loan), but does not affect contributed capital or decrease liabilities (in fact, it would increase liabilities by the amount borrowed). It also does not decrease assets.

When a Firm Borrows Money, One Effect on the Accounting