When goods are sold at a profit on credit, the effect of the sale on the accounting equation is:
A) an increase in liabilities and an increase in assets.
B) an increase in expenses and a decrease in equity.
C) a decrease in equity and an increase in liabilities.
D) an increase in assets and an increase in equity.

Question

Quizplus · Accepted Answer

When goods are sold at a profit on credit, it increases the accounts receivable (an asset) and increases the equity (profit). Therefore, the effect on the accounting equation is an increase in assets (accounts receivable) and an increase in equity, which is represented on both sides of the equation.

When Goods Are Sold at a Profit on Credit, the Effect