Question

The company purchases equipment with its cash.

(Increase, Decrease, No effect)
a) Assets
b) Liabilities
c) Owner's Equity

Answer 1

When a company purchases equipment with cash, the assets increase, liabilities have no effect, and owner's equity decreases.

Step-by-step explanation:

When a company purchases equipment with its cash, it has the following effects on its financial statements:

• Assets: The company's assets increase because the equipment is considered an asset.
• Liabilities: There is no effect on the company's liabilities as liabilities represent the company's debts, which are not affected by the purchase of equipment with cash.
• Owner's Equity: The company's owner's equity decreases because the company's cash is used to purchase the equipment.