Mitchell Company receives a bill from one of its suppliers for advertising services received and will pay the supplier next month.How does the receipt of the bill from the supplier affect the accounting equation of Mitchell?
A) assets and equity decrease
B) liabilities increase and equity decreases
C) assets and liabilities increase
D) liabilities and equity increase

Question

Quizplus · Accepted Answer

The receipt of the bill from the supplier increases the company's liabilities (accounts payable) because they owe the supplier money. As a result, the accounting equation is affected as follows:

Assets = Liabilities + Equity
The increase in liabilities decreases equity, which means that option A is incorrect. The receipt of the bill does not directly affect assets, so option C is also incorrect. Option D is incorrect because an increase in liabilities should decrease equity, not increase it. Therefore, the correct answer is B.

Mitchell Company Receives a Bill from One of Its Suppliers