A company borrows $2 million from its bank.It then uses this money to buy equipment.How does this transaction affect the accounting equation?
A)Assets and Liabilities both rise $2 million.
B)Assets increase by $2 million and Liabilities decrease by $2 million.
C)Assets decrease by $2 million and Liabilities increase by $2 million.
D)Assets remain unchanged and Liabilities increase by $2 million.

Question

Quizplus · Accepted Answer

When the company borrows $2 million, its liabilities increase by $2 million. When it uses this money to buy equipment, its assets also increase by $2 million. Thus, both assets and liabilities rise by $2 million.

A Company Borrows $2 Million from Its Bank