What are the effects on the accounting equation from the purchase of a short-term investment?
A)Assets and stockholders' equity decrease.
B)No effects-assets increase and decrease by the same amount.
C)Assets and liabilities decrease.
D)Stockholders' equity decreases and liabilities increase.

Question

Quizplus · Accepted Answer

When a company purchases a short-term investment, it will increase the asset account (usually cash) and decrease the cash account. However, there is no effect on the liabilities or stockholders' equity, so the accounting equation remains in balance. Therefore, the correct choice is B.

What Are the Effects on the Accounting Equation from the Purchase