Question

If a company purchases equipment costing $3,600 on credit, the effect on the accounting equation would be:

Answer 1

the effect of on the accounting equation is that assets has increased by $3600 and liability has increased by assets has increased by $3600 as well.

Step-by-step explanation:

Accounting equation is simply;

Liability + Equity = Assets

Now, from the question, we see that an equipment has been purchased. Thus, it means an asset has been added to the company. Thus, there is an increase in assets.

Now, the equipment was bought on credit of $3,600. This means that the company is in debt of $3,600.

A debt is a liability. Thus, there is an increase in liability.

Now, for the credit, it means the company had an equity of $3,600.l since that's the cost of the equipment.

Thus, putting $3,600 for liability and equity, we see that; assets = 3600 + 3600 = $7200

Thus,assets has increased by $3600

Therefore, the effect of on the accounting equation is that assets has increased by $3600 and liability has increased by assets has increased by $3600 as well.