A company borrows $2 million from its bank.It then uses this money to buy equipment.How does this transaction affect the accounting equation?
A)Assets and Liabilities both rise $2 million.
B)Assets and Shareholders' Equity both fall $2 million.
C)Assets,Liabilities,and Shareholders' Equity are unchanged.
D)Shareholders' Equity rises $2 million and Liabilities fall $2 million.

Question

Quizplus · Accepted Answer

When a company borrows money from a bank, it increases its assets (in this case, cash) by the amount borrowed while also increasing its liabilities (the amount owed to the bank). Therefore, both the assets and liabilities of the company increase by $2 million.

A Company Borrows $2 Million from Its Bank