Star Homes Ltd just recorded a transaction in its books of accounts.If this transaction increased the total liabilities by $12,000:

Question

Quizplus · Accepted Answer

Increase in liabilities is a result of either an increase in assets or a decrease in equity. Therefore, assets must increase or equity must decrease by $12,000 to balance the accounting equation. Option A is incorrect because it assumes that the increase in liabilities can only be offset by a decrease in assets or equity. Option C is incorrect because it assumes that the increase in liabilities was caused by a decrease in assets, which is not necessarily the case. Option D is incorrect because it assumes that both assets and equity must decrease, which is not true in this case.

Star Homes Ltd Just Recorded a Transaction in Its Books