Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 25 - No. 43)

If a business pays cash for insurance, how does it affect the accounting equation?

Assets increase, liabilities increase.

Assets decrease, liabilities decrease.

Assets increase, equity decreases.

The composition of assets changes; no net effect.

Cash decreases, prepaid insurance (an asset) increases. Total assets remain the same.