Purchasing a Building: A Step Towards Financial Growth
How can purchasing a building for $80,000 impact the overall financial position?
A. Increase both total assets and total liabilities by $80,000.
B. Increase both total assets and total liabilities by $50,000.
C. Decrease total assets and increase total liabilities by $30,000.
D. Decrease both total assets and total liabilities by $30,000.
Answer:
B. Increase both total assets and total liabilities by $50,000
Explanation:
This can be best explained using the accounting equation:
Asset = Liabilities + Equity
When purchasing a building for $80,000 by paying cash of $30,000 and signing a note payable for $50,000, it leads to an increase in both total assets and total liabilities by $50,000.
Investing in a building for $80,000 is a significant financial decision that can have a positive impact on your overall financial stability. By acquiring an asset such as a building, you are not only increasing your total assets but also taking on a liability in the form of a note payable.
When looking at the accounting equation, Asset = Liabilities + Equity, the transaction of purchasing the building can be reflected as follows:
Building ($80,000) - Cash ($30,000) = Note Payable ($50,000)
This transaction results in an increase of $50,000 in both total assets and total liabilities. This means that your financial position has been strengthened by the acquisition of the building, setting a strong foundation for future growth and prosperity.