In January Mark purchases new furniture worth $1750 for his consulting office. The furniture is purchased on credit. The effect of this transaction on the accounting equation is?
A) Increase in the asset furniture $1750; increase in the liability accounts payable $1750.
B) Increase in the asset furniture $1750; decrease in the asset accounts receivable $1750.
C) Increase in the asset furniture $1750; increase in equity $1750.
D) Increase in the asset furniture $1750; increase in the asset accounts receivable $1750.

Question

Quizplus · Accepted Answer

Since Mark purchased furniture on credit, there is no immediate effect on cash. The purchase of furniture increases the asset account (furniture) by $1750. At the same time, the liability account (accounts payable) also increases by $1750 because Mark has now incurred a debt for the furniture. This is a classic example of the basic accounting equation, where assets equal liabilities plus equity.

In January Mark Purchases New Furniture Worth $1750 for His