Question

Q. The company purchases a significant amount of supplies on credit . which of the given option are correct considering accounting equation
(a) Assets- Increase external liabilities : Increase
(b) Assets- increase external liabilities: decrease
(c) Assets- Decrease external liabilities : decrease

Answer 1

Answer:

(a) Assets- Increase External liabilities : Increase is the correct answer.

Explanation:

Accounting Equation => Assets = Liabilities + Owners Equity

This equation is based double entry accounting which says that there are two things debit and credit in a transaction and also , for every debit is done there is equal and opposite credit too.

This equation helps in creation of Balance Sheet . So , it can also be said as Balance Sheet Equation.

The LHS of equation i.e. Assets is Debit side and RHS of equation i.e. Liabilities and Owners Equity is Credit side.

Asset => Resources which are owned by some company

Liabilities => Legal Obligation or Responsibilities

Owners Equity => Money invested by owner of company in business.

As per question company has purchased a significant amount of supplies on credit which means company assets increased and also liabilities increased.

Answer 2

Option "A" is the correct answer to the following question.

Explanation:

In the question presented, the business buys goods on credit.  

As a result of buying goods, goods get into the business, which increases the assets of the business, as well as the creditors of the business.

The increase in creditors increases the liability of the business.

Therefore, Option "A" is the correct answer.

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