Final answer:
The purchase of office supplies for 800 on account would result in an increase in both assets (supplies) and liabilities (accounts payable). This kind of transaction does not involve an immediate expenditure of cash but rather creates an account payable.
Step-by-step explanation:
When Stephen purchased office supplies for 800 on account, this transaction would increase assets and increase liabilities. Since Stephen is purchasing supplies on account, he does not pay cash for the supplies immediately. Instead, he creates an account payable entry. This means that the company's supplies (an asset) increase by 800 because he has more supplies than before. Concurrently, the liabilities in the form of accounts payable also increase by 800, because the company owes money for these supplies. Therefore, the correct answer is that the transaction would increase both an asset (supplies) and a liability (accounts payable).
An example provided in the given reference is when the Fed conducts an open market purchase by buying Treasury bonds from Acme Bank. This injects money into the bank's reserves, thus increasing the bank's ability to make loans. When Acme Bank uses the proceeds to issue new loans, its reserves decrease, but the loans (another type of asset) increase by the same amount. The balance sheet's total assets remain constant, but the composition of assets changes from bonds to loans and reserves.