If total liabilities increased by $5,000, then
A) assets must have decreased by $5,000.
B) owner's equity must have increased by $5,000.
C) assets must have increased by $5,000, or owner's equity must have decreased by $5,000.
D) assets and owner's equity each increased by $2,500.

Question

Quizplus · Accepted Answer

The accounting equation states that Assets = Liabilities + Owner's Equity. If liabilities increase by $5,000, to keep the equation balanced, either assets must increase by the same amount (to balance the increase in liabilities) or owner's equity must decrease by the same amount (to offset the increase in liabilities and keep the total balance).

If Total Liabilities Increased by $5,000, Then