CA Foundation · Accounting · Theoretical Framework
Which of the following transactions will increase both total assets and total liabilities of a business, leaving capital unchanged?
Purchase of machinery on credit raises both assets and liabilities by the same amount, leaving capital unchanged. Machinery is added as an asset and the supplier becomes a creditor. The other transactions swap assets, reduce both sides, or change capital.
- APurchase of goods for cash
- BPurchase of machinery on creditCorrect
- CPayment to a creditor by cash
- DOwner introduces cash as capital
Explanation
Machinery on credit increases an asset (machinery) and a liability (creditor). Purchase of goods for cash only swaps assets. Payment to a creditor reduces both. Capital introduction increases assets and capital, not liabilities.
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