Question

If a company purchases equipment costing $5,100 on credit, the effect on the accounting equation would be: med Multiple Choice 0 Equity increases $5,100 and liabilities decrease $5,100. SU KI Assets increase $5,100 and liabilities increase $5,100. 0 d liabilities increase he n 0 Equity decreases $5,100 and liabilities increase $5,100. 55.10 es re Assets increase $5,100 and liabilities decrease $5,100. S0 0 See 0 Liabilities decrease $5,100 and assets increase $5,100.

Answer 1

	The correct answer is option 2 i.e. Asset increases by $ 5,100 and liabilities increased by $ 5,100
	When the asset is purchased it increases the asset and since the asset is purchased on credit it will also increases the liabilities
	The journal entry would be
	Dr/Cr	Particulars	Debit $	Credit $
	Debit	Asset	5,100
	Credit	Liabilities		5,100
		(To record the purchase of asset on credit)