Which of the following is true when considering the accounting equation?
A) An increase in an asset must always equal a decrease in a liability.
B) For every transaction an asset and a liability must be affected.
C) An increase in a liability must equal a decrease in owner's equity.
D) An increase in an asset may result in a decrease in another asset.

Question

Quizplus · Accepted Answer

The accounting equation (Assets = Liabilities + Owner's Equity) maintains balance by ensuring that any increase in assets can be balanced by a decrease in another asset, an increase in liabilities, or an increase in owner's equity. Option D is correct because, for example, if a company spends cash (an asset) to purchase equipment (another asset), the total assets may remain the same, but the composition of the assets changes.

Which of the Following Is True When Considering the Accounting