Multiple Choice
In the context of the fundamental accounting equation, the left side of an account is used to record which of the following?
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1. Introduction to Accounting
Fundamental Accounting Equation
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What is the effect on total assets when a company purchases land for a cash payment of $10?
A
Total assets remain unchanged.
B
Total assets increase by $10.
C
Total assets decrease by $20.
D
Total assets decrease by $10.
Verified step by step guidance1
Understand the concept of total assets: Total assets represent the sum of all resources owned by a company, including cash, land, equipment, and other items of value.
Identify the transaction: The company is purchasing land for a cash payment of $10. This means cash (an asset) is being reduced, and land (another asset) is being increased.
Analyze the impact on total assets: Since one asset (cash) decreases by $10 and another asset (land) increases by $10, the total assets remain unchanged because the decrease in one asset is offset by the increase in another.
Apply the accounting equation: The accounting equation is Assets = Liabilities + Equity. In this case, there is no change to liabilities or equity, and the total assets remain constant.
Conclude the effect: The purchase of land for cash does not change the total assets of the company; it simply reallocates the composition of assets between cash and land.
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