When an organisation purchases a machine for cash, which of the following is true?Question 3Select one:a.Total assets increase.b.Total liabilities decrease.c.Total expenses increase.d.Total equity stays the same.
Question
When an organisation purchases a machine for cash, which of the following is true?Question 3Select one:a.Total assets increase.b.Total liabilities decrease.c.Total expenses increase.d.Total equity stays the same.
Solution
When an organization purchases a machine for cash, the following is true:
d. Total equity stays the same.
Here's the step by step explanation:
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The organization spends cash to buy a machine. This means one asset (cash) decreases, but another asset (machine) increases. The total assets remain the same because the decrease in cash is offset by the increase in the value of the machine.
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Liabilities are not involved in this transaction, so total liabilities do not change.
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This transaction is a capital expenditure, not an expense. So, total expenses do not increase.
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Equity, which is assets minus liabilities, also remains the same. The assets didn't change, and neither did the liabilities, so equity doesn't change either.
Similar Questions
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