Question

A company sold $25,000 in merchandise to a customer on credit. How does this transaction affect the accounting equation?

Answer 1

When a company sells merchandise to a customer on credit, it increases their assets and liabilities.

Step-by-step explanation:

When a company sells merchandise to a customer on credit, it affects the accounting equation by increasing the company's assets and increasing its liabilities. In this case, the company's assets increase by $25,000 in accounts receivable (which represents the amount owed by the customer), and its liabilities increase by $25,000 in accounts payable (which represents the amount the company owes to the customer).