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CMA Foundation · Fundamentals of Financial and Cost Accounting · Journal and Ledger

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

Purchase of machinery for cash leaves total assets and liabilities unchanged because one asset rises while another asset, cash, falls by the same amount. The other transactions either increase or decrease both assets and liabilities, so totals change.

  1. APurchase of furniture on credit from a supplier
  2. BPayment of cash to a creditor for goods bought earlier
  3. CPurchase of machinery for cashCorrect
  4. DBorrowing a bank loan and depositing it in the bank account

Explanation

Buying machinery for cash increases one asset (machinery) and decreases another (cash) by the same amount, so totals stay the same. Credit purchase of furniture raises assets and liabilities. Paying a creditor lowers both cash and creditors. A bank loan raises both bank balance and liabilities.

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