Trout Co.ordered and received inventory worth $45,000 on credit.What is the effect of this transaction on the accounting equation?
A)Assets increases by $45,000 and liabilities increases by $45,000.
B)Assets increases by $45,000 and liabilities decreases by $45,000.
C)Assets decreases by $45,000 and liabilities increases by $45,000.
D)Assets decreases by $45,000 and liabilities decreases by $45,000.

Question

Quizplus · Accepted Answer

When inventory worth $45,000 is ordered and received on credit, the assets of the company (inventory) increase by $45,000 and the liabilities to the creditors increase by $45,000. Therefore, the accounting equation is: Assets = Liabilities + Equity. After the transaction, both the assets and the liabilities have increased by $45,000, which keeps the equation in balance. This can only happen in option A.

Trout CoOrdered and Received Inventory Worth $45,000 on Credit