Philip Corporation purchased equipment on account.What is the effect of this transaction?
A)Cash will decrease and equipment will increase.
B)Total assets will remain unchanged.
C)Cash flow from Investing Activities will decrease.
D)Total assets and total liabilities will both increase.

Question

Quizplus · Accepted Answer

When Philip Corporation purchases equipment on account, it means they are acquiring an asset (equipment) but also incurring a liability (accounts payable) to the supplier. This will result in an increase in both total assets (due to the equipment acquisition) and total liabilities (due to the accounts payable). Therefore, D is the correct answer.

Philip Corporation Purchased Equipment on Account