Which transaction increases one asset and one liability by the same amount?

Which transaction increases one asset and one liability by the same amount?

• A. Purchasing property and equipment with credit.
• B. Purchasing property and equipment with cash.
• C. Selling property and equipment for cash.
• D. Depreciating property and equipment.

Answer: (A)

Understanding how double-entry accounting works: every transaction must balance with debits equal to credits. When you purchase property and equipment on credit, you increase an asset account and you also increase a liability account by the same amount—the amount you owe to the supplier becomes a liability. For example, buying $50,000 of property and equipment on credit records a debit to Property and Equipment and a credit to Accounts Payable. Other scenarios involve swapping assets or affecting expenses and contra-assets, not creating a liability. Buying with cash increases one asset but decreases another (cash), so liabilities don’t rise. Selling for cash changes assets but not liabilities. Depreciation reduces net assets by recording depreciation expense and increases accumulated depreciation, which is a contra-asset, not a liability.

Understanding how double-entry accounting works: every transaction must balance with debits equal to credits. When you purchase property and equipment on credit, you increase an asset account and you also increase a liability account by the same amount—the amount you owe to the supplier becomes a liability. For example, buying $50,000 of property and equipment on credit records a debit to Property and Equipment and a credit to Accounts Payable. Other scenarios involve swapping assets or affecting expenses and contra-assets, not creating a liability. Buying with cash increases one asset but decreases another (cash), so liabilities don’t rise. Selling for cash changes assets but not liabilities. Depreciation reduces net assets by recording depreciation expense and increases accumulated depreciation, which is a contra-asset, not a liability.