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JAMB Principles of Accounts 1998 Question 6

Question 6

Accounting Equation

When a transaction causes an asset account to increase, there is

  1. A.a decrease of equal amount in the owner's equity account
  2. B.an increase in a liability account
  3. C.an increase of equal amount in another asset account
  4. D.a decrease of equal amount in a liability account.
Show the answer and explanation

Answer: B (an increase in a liability account)

Explanation

To keep Assets = Liabilities + Capital in balance, an increase in an asset can be matched by an increase in a liability (e.g. buying on credit).