What would the effect on liabilities be if, during the accounting period the assets increased by R50,000, and the owner's equity increased by R10,000?Group of answer choicesA. Increased by R60,000B. Increased by R40,000C. Decreased by R40,000D. Decreased by R60,000
Question
What would the effect on liabilities be if, during the accounting period the assets increased by R50,000, and the owner's equity increased by R10,000?Group of answer choicesA. Increased by R60,000B. Increased by R40,000C. Decreased by R40,000D. Decreased by R60,000
Solution
The effect on liabilities can be determined using the fundamental accounting equation: Assets = Liabilities + Owner's Equity.
Given that the assets increased by R50,000 and the owner's equity increased by R10,000, we can substitute these values into the equation:
New Assets = Old Assets + R50,000 New Owner's Equity = Old Owner's Equity + R10,000
Substituting these into the equation gives us:
Old Assets + R50,000 = Liabilities + (Old Owner's Equity + R10,000)
Rearranging the equation to solve for Liabilities gives us:
Liabilities = (Old Assets + R50,000) - (Old Owner's Equity + R10,000)
This simplifies to:
Liabilities = Old Assets - Old Owner's Equity + R40,000
So, the liabilities would have increased by R40,000. Therefore, the correct answer is B. Increased by R40,000.
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