A business borrows $10 000 from the bank.What effect does this transaction have on the accounting equation?

Question

Quizplus · Accepted Answer

When a business borrows $10,000 from the bank, it increases its cash assets by $10,000, and at the same time, it creates a liability of $10,000 owed to the bank. Hence, the overall effect on the accounting equation is an increase in both assets and liabilities by $10,000, resulting in no change in equity. This transaction follows the basic accounting principle of the double-entry system, where every transaction affects two or more accounts. Therefore, option A is the correct choice.

A Business Borrows $10 000 from the Bank