When Equipment Is Purchased on Credit

question 36

Multiple Choice

When equipment is purchased on credit,

• A) assets and liabilities increase.
• B) assets increase and liabilities decrease.
• C) assets and owner's equity increase.
• D) assets and expenses increase.

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Definitions:

Straight-line Method

A method of calculating depreciation or amortization by evenly distributing the cost of an asset over its expected useful life.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, representing its decrease in value over time.

Shipping Costs

Expenses associated with transporting goods from one location to another, often considered part of the cost of sales or inventory.

Sales Tax

A mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. In this context, it specifically refers to a tax on sales of goods and services.