Question

When a company pays cash for equipment, what is the effect on the accounting equation for that company?

A) Decrease assets and decrease liabilities.
B) No change.
C) Increase assets and increase liabilities.
D) Increase assets and increase stockholders' equity.

Answer 1

When a company pays cash for equipment, it increases assets and decreases cash.

Step-by-step explanation:

When a company pays cash for equipment, it has two effects on the accounting equation. Firstly, it increases the company's assets because equipment is considered an asset. Secondly, it decreases the company's cash, which is also an asset. Therefore, the effect on the accounting equation is an increase in assets and a decrease in assets, resulting in option D) Increase assets and increase stockholders' equity.