What would the effect on liabilities be if, during the accounting period the assets increased by R70,000, and the owner's equity decreased by R30,000?Group of answer choicesA. Increased by R100,000B. Increased by R40,000C. Decreased by R40,000D. Decreased by R100,000
Question
What would the effect on liabilities be if, during the accounting period the assets increased by R70,000, and the owner's equity decreased by R30,000?Group of answer choicesA. Increased by R100,000B. Increased by R40,000C. Decreased by R40,000D. Decreased by R100,000
Solution
The effect on liabilities can be determined using the fundamental accounting equation: Assets = Liabilities + Owner's Equity.
Given that the assets increased by R70,000 and the owner's equity decreased by R30,000, we can substitute these values into the equation:
New Assets = Old Liabilities + (Old Owner's Equity - R30,000)
R70,000 = Old Liabilities + (Old Owner's Equity - R30,000)
Solving for Old Liabilities, we get:
Old Liabilities = R70,000 - (Old Owner's Equity - R30,000)
This simplifies to:
Old Liabilities = R70,000 - Old Owner's Equity + R30,000
This means that the liabilities increased by R100,000.
So, the correct answer is A. Increased by R100,000.
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