Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 33 - No. 26)
When a business purchases inventory with cash, how does this affect the accounting equation?
Assets increase, liabilities increase.
Assets decrease, liabilities decrease.
Assets increase, liabilities decrease.
The composition of assets changes; no net effect.
Explanation
Inventory (an asset) increases while cash (an asset) decreases. The total assets remain the same.
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