Question

If the liabilities of a business increased $75,000 during a period of time and the owner's equity in the business decreased $30,000 during the same period, the assets of the business must have:

Answer 1

the assets of the business must have increased by $45,000

Step-by-step explanation:

It is important to remember that the Accounting Equation is stated as :

Assets = Equity + Liabilities

From the Information the amounts an be established as :

Liabilities = + $75,000 (increase)

Equity = - $30,000 (decrease)

Thus, substituting these amounts and taking careful considerations at the signs they carry the effect on the Assets can be determined as :

Assets = - $30,000 + $75,000

= + $45,000

We have arrived at a positive amount. Therefore, the assets of the business must have increased by $45,000