Answer:
The accounting equation states that a company’s total assets are equal to the sum of its liabilities and its shareholders’ equity1. This equation sets the foundation of double-entry accounting, where every transaction affects at least two accounts2. Therefore, if the liabilities of a business increased $8,000 during a period of time and equity in the business decreased $4,000 during the same period, the assets of the business must have decreased $4,000 during that period. This is because the net effect on the right side of the equation is an increase of $4,000 ($8,000 - $4,000), which must be matched by an equal decrease on the left side of the equation.