Land is purchased by a business for $100,000. The company pays for the land by a cash payment of $20,000 and promised to pay the remaining amount at a later period. What is net effect of this transaction on the business's accounting equation?

Question

Quizplus · Accepted Answer

The land purchase increases assets by $100,000, but since $20,000 is paid in cash, the net increase in assets is $80,000. The remaining $80,000 is a liability, as it is a promise to pay later.

Land Is Purchased by a Business for $100,000