Asked by Sebastian Alonso on May 04, 2024
Verified
A purchase of a vehicle on credit would have what effect on the accounting equation?
A) Total Assets and total Liabilities increase.
B) Total Liabilities are overstated.
C) Total Owner's Equity is overstated.
D) Both A and B are correct.
Accounting Equation
The foundational principle of accounting representing the relationship between a company’s assets, liabilities, and equity: Assets = Liabilities + Equity.
Vehicle
A means of transportation, such as a car, truck, motorcycle, or bicycle, that facilitates the movement of people or goods from one place to another.
Credit
Credit refers to the trust which allows one party to provide resources to another party wherein the second party does not reimburse the first party immediately but promises either to repay or return those resources at a later date.
- Scrutinize transactions to determine their impact on the accounting equation.
- Identify the differences between asset acquisition strategies, specifically cash purchases versus credit purchases.
Verified Answer
ZK
Zybrea KnightMay 06, 2024
Final Answer :
A
Explanation :
When a vehicle is purchased on credit, it increases total assets (the vehicle) and total liabilities (the amount owed for the vehicle), keeping the accounting equation balanced.
Learning Objectives
- Scrutinize transactions to determine their impact on the accounting equation.
- Identify the differences between asset acquisition strategies, specifically cash purchases versus credit purchases.