ICAEW AF · Chapter 1 · Question 9 of 11
A business buys inventory on credit for £7,500. What is the effect of this transaction on the accounting equation?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Assets increase by £7,500 and liabilities increase by £7,500; equity is unchanged
Explanation
Inventory is an asset, so assets rise by £7,500. Because the goods have not been paid for, a trade payable (a liability) of the same amount arises. No income or expense has yet been recognised, so equity is unaffected and the equation assets = equity + liabilities still balances.
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