If the total liabilities of a business decrease by R50,000 what will be the effect on total assets? (assuming the amount of capital remains the same) Group of answer choicesA. Decrease by R100,000B. Decrease by R50,000C. Increase by R50,000D. Increase by R100,000
Question
If the total liabilities of a business decrease by R50,000 what will be the effect on total assets? (assuming the amount of capital remains the same) Group of answer choicesA. Decrease by R100,000B. Decrease by R50,000C. Increase by R50,000D. Increase by R100,000
Solution
The answer is B. Decrease by R50,000.
Here's why:
The basic accounting equation is Assets = Liabilities + Owner's Equity (Capital). If liabilities decrease by R50,000 and the owner's equity remains the same, then assets must also decrease by R50,000 to keep the equation balanced.
So, if liabilities decrease by R50,000, assets will also decrease by R50,000, assuming that there is no change in the owner's equity.
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