Question

Mitchell Company receives a bill from one of its suppliers for advertising services received and will pay the supplier next month. How does the receipt of the bill from the supplier affect the accounting equation of Mitchell? Select one: A. Assets and equity decrease. B. Liabilities and equity increase. C. Assets and liabilities increase. D. Liabilities increase and equity decreases.

Answer 1

Answer: D liabilities increases and equity decreases

Explanation: Mitchell company received a bill from one of his supplier which is a liability that its must offset . The transactions resulted in the increase in Liabilities and decrease in equity, which will be offset by an equal decrease in Equity and vice versa.

To caused the accounting equation to be balance after incorporating a transaction, any increase in liability it will be matched by an equal decrease in equity and vice versa.

Answer 2

Answer: the correct option is D.

Explanation: First we shall define Liabilities and Equity.

Liabilities are the obligations of a company, meaning that, they are amounts owed to creditors for past transactions and they usually have the word "payable" in their account title.

Equity is the remaining value of an owner's interest in a company, after all liabilities have been deducted.

From the definitions above, we can see that the liabilities of Mitchell Company have increased because the company owes the supplier. While the equity has decreased because it is what is left of the value of the company after the liabilities have been deducted.