Question

The company purchases a significant amount of supplies on credit.

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

Answer 1

Purchasing supplies on credit increases both assets and liabilities with no immediate effect on owner's equity.

Step-by-step explanation:

When a company purchases supplies on credit, it experiences an increase in assets because the supplies themselves are considered assets. At the same time, there is an increase in liabilities, as the company now owes money for the supplies purchased on credit. There is no immediate effect on the owner's equity as this transaction does not immediately impact the owner's investment or the net income of the company. However, owner's equity could change in the future as a result of profits or losses related to the use of these supplies.