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docker41 [41]
3 years ago
6

Alpha Company has assets of $624,000, liabilities of $262,000, and equity of $362,000. It buys office equipment on credit for $8

7,000. What would be the effects of this transaction on the accounting equation?
Business
1 answer:
Sphinxa [80]3 years ago
3 0

Answer:

The effect is an increase in the balance of assets by $87,000 and  a corresponding increase in the balance of liabilities.

Explanation:

The accounting equation shows the relationship between all the elements of the balance sheet. These are the assets, liabilities and owners equity. It is shown as

Assets = Liabilities + Equity

When a company buys an asset on account, the entries required are debit assets, credit accounts payable. This means that asset increases but so does liabilities balance.

Hence asset increases to

= $624,000 + $87,000

= $711,000

Liabilities also increases to

= $262,000 + $87,000

= $349,000

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