If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

Question

Quizplus · Accepted Answer

When a company purchases equipment on credit, it increases its assets (the value of the equipment) by $4,500, but also increases its liabilities (the amount owed to the creditor) by the same amount. Therefore, the accounting equation remains balanced: Assets = Liabilities + Equity. Option A is incorrect because it suggests a decrease in liabilities, which is not the case when equipment is purchased on credit. Option C is also incorrect because it suggests a decrease in equity, which is not affected by the purchase of equipment on credit. Option D is incorrect because it suggests an increase in equity, which is not affected by this transaction. Option E is incorrect because it suggests a decrease in assets, which is not the case when equipment is purchased.

If a Company Purchases Equipment Costing $4,500 on Credit, the Effect