If a transaction causes a liability account to increase, which of these related effects may also occur?

Question

Quizplus · Accepted Answer

If a liability account increases, it means that the company owes more money to someone else. This may result in the company acquiring an asset, such as cash or inventory, as it is exchanging their liability for something of value. Therefore, an increase of an equal amount in an asset account may occur. Option A is incorrect because an increase in a liability account does not affect equity directly. Option C is incorrect because paying off a liability would decrease an asset account. Option D is incorrect because there is no direct relationship between liability accounts.

If a Transaction Causes a Liability Account to Increase, Which