If a company purchases equipment costing $4,500 on credit,the effect on the accounting equation would be:

A) Assets increase $4,500 and liabilities decrease $4,500.
B) Equity decreases $4,500 and liabilities increase $4,500.
C) One asset increases $4,500 and another asset decreases $4,500.
D) Assets increase $4,500 and liabilities increase $4,500.
E) Equity increases $4,500 and liabilities decrease $4,500.

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Lavoni Zaman · Accepted Answer

Final Answer : D, Explanation :  When a company purchases equipment on credit, the equipment is considered an asset and will increase by $4,500. However, since the company has not yet paid for the equipment, it incurs a liability of the same amount, resulting in an increase in liabilities by $4,500. Therefore, the effect on the accounting equation is that both assets and liabilities increase by $4,500, which is represented by choice D.

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