Question

If the liabilities of a business increased $65,000 during a period of time and equity in the business decreased $21,000 during the same period, would the assets of the business have increased or decreased? By what amount?

a) Increased by $44,000
b) Decreased by $44,000
c) Increased by $86,000
d) Decreased by $86,000

Answer 1

The assets would have increased by $44,000 when liabilities increased by $65,000 and equity decreased by $21,000, based on the accounting equation.

Step-by-step explanation:

When assessing the changes in a business's assets due to changes in liabilities and equity, we can refer to the basic accounting equation: Assets = Liabilities + Equity. If the liabilities of a business increased by $65,000, and at the same time, the equity decreased by $21,000, then we would see a net change in assets.

The increase in liabilities adds to the assets, while the decrease in equity reduces the assets. So, the assets would have increased by $44,000 (which is $65,000 - $21,000).

The correct answer to the question is: a) Increased by $44,000.