Multiple Choice
The accounting equation at a given point in time can be calculated using which financial statement?
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1. Introduction to Accounting
Fundamental Accounting Equation
Multiple Choice
How does the payment of rent for equipment affect the fundamental accounting equation?
A
Assets increase and liabilities increase.
B
Liabilities decrease and owner's equity increases.
C
Assets increase and owner's equity decreases.
D
Assets decrease and owner's equity decreases.
Verified step by step guidance1
Understand the fundamental accounting equation: Assets = Liabilities + Owner's Equity. This equation must always remain balanced.
Identify the nature of the transaction: Payment of rent for equipment is an expense, which reduces cash (an asset) and impacts owner's equity by decreasing it due to the expense incurred.
Analyze the impact on assets: Since cash is used to pay rent, the cash account (an asset) decreases.
Analyze the impact on owner's equity: Rent payment is recorded as an expense, which reduces net income. A decrease in net income leads to a decrease in owner's equity.
Conclude the effect: The payment of rent for equipment results in a decrease in assets (cash) and a decrease in owner's equity (due to the expense).
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