Question

Addison Company experienced an accounting event that affected its financial statements as indicated below:

Assets (+) = Liab (N/A) + Equity (+) Rev. (+) - Exp. (N/A)

Which of the following accounting events could have caused these effects on Addison's statements
A. Purchase of equipment on credit
B. Sale of merchandise for cash
C. Borrowing money from a bank
D. Payment of utilities expense

Answer 1

The event that matches the given financial statement changes - an increase in assets and equity without an increase in liabilities - is the sale of merchandise for cash.

Step-by-step explanation:

The accounting event described where Assets increase and Equity increases due to an increase in Revenue, with no mention of an increase in Liabilities or Expenses, would correspond to B. Sale of merchandise for cash. This event results in cash (an asset) being received without creating a liability, and with revenue being reported, it increases the equity of the company. Options A (Purchase of equipment on credit) and C (Borrowing money from a bank) both involve creating a liability, which the given event does not. Option D (Payment of utilities expense) would decrease assets and equity due to the expense, which is also not indicated by the event.