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    The Accounting Equation

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    Consider the following statements:
    I. The payment of a liability in cash will decrease stockholders' equity.
    II. The purchase of equipment for cash has no effect on total assets value.
    III. When a business borrows money from a bank, both the left and right sides of the accounting equation increase.

    a) All statements I, II and III are true.
    b) Only statement II is true.
    c) Only statement III is true.
    d) Statements II and III are both true.
    e) None of the above options (a to d) accurately reflect the veracity of statements I, II and III.

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    Solution Preview

    The payment of a liability decreases cash (an asset) and a liability, but has no effect on stockholders' equity, so answer a is incorrect. The purchase of equipment for cash increases ...

    Solution Summary

    Using examples, this solution discusses the accounting equation and the effects of different transactions on it.