BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The Boat Shop purchased a truck for $12, 000 with a $5, 000 downpayment in cash and a $7, 000 note payable due in 60 days. The result of this transaction is
A
Total assets increased by $12, 000
B
Total liabilities decreased by $7, 000
C
Makes the business more liquid from the creditor’s point of view
D
Has no impact on owners equity
Explanation: 

Detailed explanation-1: -Answer and Explanation: The answer is 3. 60, 000.

Detailed explanation-2: -The safety principle: assets are valued at no more than the value for which they are insured. This is the correct option. The safety principle does not exist and insurance values are irrelevant in accounting.

Detailed explanation-3: -Explanation: If an inventory is purchased for cash, it means there will be an increase in inventory which is a current asset. At the same time, a cash payment will reduce the cash balance which is a current asset.

Detailed explanation-4: -On a balance sheet or in a ledger, assets equal liabilities plus shareholders’ equity. An increase in the value of assets is a debit to the account, and a decrease is a credit.

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