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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Under the accounting equation, which of the following transactions leaves total assets unchanged and total liabilities unchanged, but changes the composition of assets?

Purchase of furniture for cash only swaps one asset for another: furniture rises while cash falls by the same amount. Total assets, liabilities and capital do not change. The other transactions alter liabilities or capital along with assets, so they change the totals.

  1. APurchase of machinery on credit
  2. BPurchase of furniture for cashCorrect
  3. CPayment of a creditor in cash
  4. DIntroduction of additional capital in cash

Explanation

Buying furniture for cash increases one asset (furniture) and decreases another (cash) by the same amount. Total assets, liabilities and capital stay the same. Purchase on credit raises both assets and liabilities, paying a creditor reduces both assets and liabilities, and fresh capital raises both assets and capital.

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