Question

A truck is purchased on credit. For this transaction, identify the effect on the accounting equation. a. Liabilities increase and owners' equity decreases. b. Liabilities decrease and assets decrease. c. Assets increase and owners' equity increases. d. Assets increase and liabilities increase.

Answer 1

d. Assets increase and liabilities increase.

Step-by-step explanation:

When a truck is purchased on credit, since cash is not paid, the cash account is not involved.

This represents an increase in asset while a liabilities in form of an obligation to pay for the asset also arise.

As such, there is an increase in asset and the liabilities balance.

Therefore, the right option is d. Assets increase and liabilities increase.