If total liabilities decreased by $45,000 during a period of time and shareholders' equity increased by $27,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n)
A)$45,000 increase.
B)$27,000 increase.
C)$18,000 decrease.
D)$18,000 increase.

Question

Quizplus · Accepted Answer

The accounting equation is Assets = Liabilities + Shareholders' Equity. If liabilities decreased by $45,000 and shareholders' equity increased by $27,000, then there must have been a decrease in assets of $18,000 ($45,000 - $27,000 = $18,000) to balance the equation. Therefore, the answer is C, an $18,000 decrease.

If Total Liabilities Decreased by $45,000 During a Period of Time