Question

On November 2, 2018, Salt Company purchased $20,000 of goods from Pepper Company on account. How will this purchase affect Salt Company's financial statements on November 2?

a. Assets will increase, liabilities will remain unchanged, equity will increase.
b. Assets will increase, liabilities will increase, equity will remain unchanged.
c. Assets, liabilities, and equity will remain unchanged.
d. Assets will decrease, liabilities will decrease, equity will remain unchanged.

Answer 1

The purchase of goods on account will increase Salt Company's assets, keep liabilities unchanged, and increase equity.

Step-by-step explanation:

When Salt Company purchased $20,000 of goods from Pepper Company on account, it would affect Salt Company's financial statements on November 2 as follows:

a. Assets will increase, liabilities will remain unchanged, equity will increase.

The purchase of goods increases Salt Company's assets because the goods are considered an asset. Liabilities remain unchanged because the goods were purchased on account or credit. Equity increases because the purchase of goods represents an increase in the company's value.