Question

Over the period of a year, Sam’s net worth increased. Which of the following could be true?

a. Sam’s assets and liabilities decreased by the same amount.
b. Sam’s assets and liabilities increased by the same amount.
c. Sam’s assets increased by more than his liabilities.
d. Sam’s assets decreased by more than his liabilities.

Answer 1

The correct answer is c. Sam’s assets increased by more than his liabilities.

Step-by-step explanation:

Taking into account the basic accounting equation (Assets - liabilities = equity), a greater variation on the side of the assets will always mean an increase in equity as long as the liabilities have a contrary behavior.

The theory of charge and credit refers to the effect that commercial transactions have on the equity equation. Each transaction affects the balance, changes the values in the equity without altering the balance of the opposition .

The theory of charge and credit is the set of rules that, based on the laws of equity, allow the registration of capital and other accounting facts through a system of accounts. In each of these transactions, at least two accounts act.