If total liabilities decreased by $30,000 and stockholders' equity decreased by $20,000 during a period of time, then total assets must change by what amount and direction
During that same period?

Question

Quizplus · Accepted Answer

According to the accounting equation, assets = liabilities + stockholders' equity. Therefore, if liabilities decrease by $30,000 and stockholders' equity decreases by $20,000, then the total decrease in liabilities and equity is $50,000. To balance the accounting equation, the assets must also decrease by $50,000. However, since the question is asking for the direction of the change, we use a negative sign to represent the decrease. Therefore, the answer is a $50,000 decrease in total assets.

If Total Liabilities Decreased by $30,000 and Stockholders' Equity Decreased