If total liabilities increased by $15,000, then
A)assets must have increased by $15,000.
B)only shareholders' equity must have increased by $15,000.
C)assets must have increased by $15,000, or shareholders' equity must have decreased by $15,000.
D)assets and shareholders' equity must have both decreased by $15,000.

Question

Quizplus · Accepted Answer

The accounting equation is Assets = Liabilities + Shareholders' Equity. If total liabilities increase by $15,000, then either assets must also increase by $15,000 (in order to maintain balance in the equation) or shareholders' equity must decrease by $15,000 (if assets did not increase). Therefore, the correct answer is either assets increased by $15,000 or shareholders' equity decreased by $15,000, which is choice C.

If Total Liabilities Increased by $15,000, Then