Question

What is the impact on the Accounting Equation when Rosemary purchases $1,500 of herb inventory for resale purposes?

a) Assets increase; Liabilities increase
b) Assets increase; Owner's equity increases
c) Assets decrease; Owner's equity decreases
d) Liabilities decrease; Owner's equity decreases

Answer 1

When Rosemary purchases $1,500 of herb inventory for resale purposes, the impact on the Accounting Equation is that Assets increase and Owner's equity increases.

Step-by-step explanation:

When Rosemary purchases $1,500 of herb inventory for resale purposes, the impact on the Accounting Equation is that Assets increase and Owner's equity increases.

The Accounting Equation is Assets = Liabilities + Owner's equity. Purchasing $1,500 of herb inventory increases the Assets side of the equation because inventory is considered an asset. Additionally, Owner's equity increases because purchasing inventory for resale can lead to higher profits for the business.