Final answer:
A sole trader purchasing goods on credit increases both assets (inventory) and liabilities (debt to suppliers), without affecting the owner's equity at the time of purchase.
The Correct Option is; A Assets and liabilities
Step-by-step explanation:
When a sole trader purchases goods on credit, this transaction affects the accounting equation by changing two elements: assets and liabilities.
The inventory, which is an asset, increases because goods are added to the business's stock without an immediate cash outlay.
Concurrently, liabilities increase since the trader has an obligation to pay the supplier in the future. This transaction does not affect the owner's capital directly at the time of the purchase.
The accounting equation—Assets = Liabilities + Owner's Equity (Capital)—remains in balance because the increase in assets is offset by an equal increase in liabilities.
No change occurs to the owner's equity in this instance because only the assets and liabilities sides of the equation have been altered.