Star Homes Corporation just recorded a transaction in its books.If this transaction increased the total liabilities by $12,000,then ________.

Question

Quizplus · Accepted Answer

According to the basic accounting equation, Assets = Liabilities + Equity. If the transaction increased the total liabilities by $12,000, then either assets must increase or equity must decrease by the same amount. Option A correctly identifies this relationship. Option B is incorrect because it suggests that both assets and equity could decrease when only one side of the equation is impacted. Option C is incorrect because it suggests that both assets and equity would need to be reduced by half the increase in liabilities, which is not accurate. Option D is incorrect because it suggests that assets must decrease, but this is not necessarily true based on the information provided.

Star Homes Corporation Just Recorded a Transaction in Its Books