Question

If a company purchases equipment costing $5,100 on credit, the effect on the accounting equation would be:

Answer 1

assets increase $5,100 and liabilities increase $5,100

Step-by-step explanation:

Assets are the items that a company owns which can provide future economic benefit.

Liabilities are future sacrifices of economic benefits that an entity is obliged to make to other entities as a result of past transactions or other past events, hence Liabilities are what a person or company owe other parties.

If a company purchases equipment costing $5,100 on credit, the assets of the company will increase by $5100 as a result of acquiring an equipment. Also, the liability will increase by $5100 as a result of debt owed.