One effect on the accounting equation when a firm borrows money is:
A) Stockholders' equity decreases.
B) Assets increase.
C) Liabilities decrease.
D) Assets decrease.

Question

Quizplus · Accepted Answer

When a firm borrows money, it receives cash, which increases its assets. The firm also incurs a liability to repay the loan, which increases its liabilities. Stockholders' equity is not affected by borrowing money.

One Effect on the Accounting Equation When a Firm Borrows