If a transaction causes total assets of the company to increase by $5,000 and total liabilities to increase by $3,000,then stockholders' equity increases by $8,000.

Question

Quizplus · Accepted Answer

The equation for the accounting equation is Assets = Liabilities + Stockholders' Equity. If assets and liabilities both increase by certain amounts, then the remaining balance must be going to stockholders' equity. In this case, if assets increase by $5,000 and liabilities increase by $3,000, then stockholders' equity must increase by the remaining $2,000 ($5,000 - $3,000 = $2,000). Therefore, the statement is true and stockholders' equity increases by $8,000 ($2,000 + $6,000 initial stockholders' equity = $8,000 final stockholders' equity).

If a Transaction Causes Total Assets of the Company to Increase