A business receives a bill from one of its suppliers for services received. The business will pay the supplier next month. How does the receipt of the bill from the supplier affect the accounting equation of the business?
A)Assets decrease; equity decrease.
B)Liabilities increase; equity decrease.
C)Assets increase; liabilities increase.
D)Liabilities increase; equity increase.

Question

Quizplus · Accepted Answer

When the business receives the bill from the supplier, it creates a liability for the business as it owes money to the supplier. Thus, the liability increases while the equity decreases. This affects the accounting equation by increasing the liabilities and decreasing the equity, which ultimately balances the equation.

A Business Receives a Bill from One of Its Suppliers