Question

Rosemary bought some inventory for $2,000 cash. Which part(s) of the accounting equation does this impact?

a. Assets increase
b. Liabilities increase
c. Equity increase
d. Both a and c

Answer 1

Rosemary's purchase of inventory for $2,000 cash affects the assets part of the accounting equation, increasing inventory while decreasing cash, with no impact on liabilities or equity.

Step-by-step explanation:

When Rosemary bought some inventory for $2,000 cash, it impacted assets within the accounting equation. Specifically, it increased the inventory asset while decreasing the cash asset. Since the purchase was made with cash, the net effect on total assets is zero, and there is no change in liabilities or equity. Hence, the correct parts of the accounting equation that are impacted are solely assets. No new debts were incurred (liabilities), and the owner's equity remains unchanged because the transaction only swapped one asset for another within the business.