Jane is an accountant operating as a sole proprietor. In January she purchases for $540 some new furniture for her office. The purchase is made on credit. Which of the following represents the effect of this transaction on the accounting equation?
A) Increase in the asset furniture $540; increase in the liability accounts payable $540.
B) Increase in the asset furniture $540; decrease in the asset accounts receivable $540.
C) Increase in the asset furniture $540; increase in equity $540.
D) Increase in the asset furniture $540; increase in the asset accounts receivable $540.

Question

Quizplus · Accepted Answer

The purchase of new furniture for the office is an increase in the asset of the furniture account. Since the purchase is made on credit, it also increases the liability of the accounts payable account by the same amount. Therefore, the effect on the accounting equation is an increase in assets (furniture) and an increase in liabilities (accounts payable), with no change in equity.

Jane Is an Accountant Operating as a Sole Proprietor