ACCA Applied Knowledge · Financial Accounting · Key principles and concepts of accounting
Which of the following transactions will decrease equity?
Paying $2,000 rent for the current month decreases equity because it is an expense that reduces profit. Buying inventory on credit and settling a payable do not affect equity, and issuing shares increases it.
- APurchasing inventory on credit for $5,000
- BPaying a supplier $3,000 to settle an existing payable
- CPaying $2,000 of rent for the current monthCorrect
- DIssuing shares for $10,000 cash
Explanation
Rent paid for the current month is an expense, which reduces profit and therefore equity by $2,000. Buying inventory on credit and paying a payable only change assets and liabilities. Issuing shares increases equity.
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