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21 July, 20:13

Alpha Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It buys office equipment on credit for $75,000. What would be the effects of this transaction on the accounting equation?

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  1. 21 July, 21:05
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    Asset will increase by $75,000 (DR) and liability will as well increase by $75,000 (CR)

    Explanation:

    With the purchase of Office Equipment for $75,000, Assets balance will increase (DR) and liability balance (i. e account payable) will equally increase with the same amount.

    Asset naturally has a debit balance. Any addition will be debited and then the balance will increase.

    Liability has a credit balance. Any addition will be credited, hence increase the balance of the liability.
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