If total liabilities decreased by $55,000 during a period of time and owner's equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is
A) $115,000 increase
B) $5,000 increase
C) $5,000 decrease
D) $115,000 decrease

Question

Quizplus · Accepted Answer

The accounting equation is Assets = Liabilities + Owner's Equity. 
If liabilities decrease by $55,000 and Owner's Equity increases by $60,000, then: 
Assets = Liabilities + Owner's Equity 
Assets = (Liabilities - $55,000) + (Owner's Equity + $60,000) 
Simplifying: 
Assets = Liabilities + Owner's Equity + ($60,000 - $55,000) 
Assets = Liabilities + Owner's Equity + $5,000 
Therefore, the total assets increased by $5,000.

If Total Liabilities Decreased by $55,000 During a Period of Time