Total liabilities increase by $7,000.How is the accounting equation affected?
A) Either assets have increased by $7,000, or owner's equity has decreased by $7,000.
B) Assets have decreased by $7,000.
C) Assets and owner's equity have each decreased by $3,500.
D) Owner's equity has increased by $7,000.

Question

Quizplus · Accepted Answer

The accounting equation is Assets = Liabilities + Owner's Equity. If total liabilities increase by $7,000, then either assets must have also increased by $7,000 or owner's equity must have decreased by $7,000 in order to keep the equation balanced. Therefore, (A) is the correct choice.

Total Liabilities Increase by $7,000