If the liabilities of a company increased $74,000 during a period of time and equity in the company decreased $19,000 during the same period, what was the effect on the assets?
A) None of the above.
B) Assets would have decreased $19,000.
C) Assets would have increased $55,000.
D) Assets would have decreased $55,000.
E) Assets would have increased $19,000.

Question

Quizplus · Accepted Answer

According to the accounting equation, Assets = Liabilities + Equity. If liabilities increase by $74,000 and equity decreases by $19,000, the net effect on assets is an increase of $55,000 ($74,000 - $19,000).

If the Liabilities of a Company Increased $74,000 During a Period