A business purchases inventory on credit. What is the immediate effect on the accounting equation?
Correct answer: C. Assets increase and liabilities increase
- A. Liabilities decrease and equity increase
- B. Assets increase and owner's equity increase
- C. Assets increase and liabilities increase
- D. Assets decrease and liabilities increase
Explanation
The inventory received increases assets, while the unpaid supplier balance increases liabilities. Owner's equity is not directly affected at the time of purchase.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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