A business purchased a motor vehicle worth $40 000,paying $15 000 cash and borrowing $25 000.The effect of this transaction on the accounting equation is:

Question

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The transaction increases the asset motor vehicles by $40 000, decreases the asset cash by $15 000 and increases the liability loan payable by $25 000. Therefore, the balance sheet equation is balanced. Increase in assets is debited and decrease in assets is credited, while increase in liabilities is credited and decrease in liabilities is debited. Therefore, the accounting equation is:

Assets = Liabilities + Equity
Motor vehicles ($40 000) = Loan payable ($25 000) + Cash ($15 000)

A Business Purchased a Motor Vehicle Worth $40 000,paying $15