Question

Borrowing cash from the bank would have what effect on the accounting equation?

A. Assets increase and liabilities increase.
B. Liabilities increase and stockholders’ equity decreases.
C. Liabilities decrease and stockholders’ equity increases.
D. Assets increase and stockholders’ equity increases.

Answer 1

Borrowing cash from the bank will increase both assets and liabilities in the accounting equation without directly affecting stockholders' equity.

Step-by-step explanation:

Borrowing cash from the bank would have the effect of both increasing assets and liabilities on a company's balance sheet. When a company borrows money from the bank, it receives cash, which is an asset, but at the same time incurs a debt that it must repay, which is a liability. This transaction will not directly affect the stockholders' equity. Therefore, the correct answer to the question "Borrowing cash from the bank would have what effect on the accounting equation?" is A. Assets increase and liabilities increase.