A truck is purchased on credit.For this transaction,identify the effect on the accounting equation.
A)Assets increase and liabilities increase.
B)Assets increase and owners' equity increases.
C)Liabilities increase and owners' equity decreases.
D)Liabilities decrease and assets decrease.

Question

Quizplus · Accepted Answer

The truck is an asset and it increases with the purchase. The purchase is made on credit, which means that a liability (the owed amount) is created, and therefore, the liabilities also increase. This results in an increase in both assets and liabilities, making option A the correct answer.

A Truck Is Purchased on Credit