If an individual asset, in a proprietorship, is increased, then
A) there may be an equal decrease in a specific liability.
B) there may be an equal decrease in owner's equity.
C) there may be an equal decrease in another asset.
D) None of these is possible.

Question

Quizplus · Accepted Answer

In a proprietorship, there is no separate legal entity, so any increase in one asset must be countered by a decrease in another asset to maintain the balance sheet equation (assets = liabilities + owner's equity). It is also possible for there to be no change in liabilities or owner's equity. Therefore, option C is the most likely possibility. Option A is incorrect because there may not be a specific liability that corresponds to the increase in the asset. Option B is incorrect because an increase in an asset would not lead to a decrease in owner's equity, which represents the owner's investment in the business.

If an Individual Asset, in a Proprietorship, Is Increased, Then