Tumbler,Inc.purchased office supplies on account for $40,000.How would this transaction affect Tumbler's accounting equation?

Question

Quizplus · Accepted Answer

When Tumbler, Inc. purchases office supplies on account, it increases its assets (in this case, office supplies) by $40,000 and also increases its liabilities (accounts payable) by $40,000. Therefore, the accounting equation is:

Assets = Liabilities + Stockholders' Equity

Before the transaction:

A = L + SE

After the transaction:

A + $40,000 = L + $40,000 + SE

By rearranging the equation, we get:

A = L + SE

which shows that both assets and liabilities have increased by $40,000. Option D correctly reflects this.