Question

For each transaction a through f, identify its impact on the accounting equation (select from 1 through 6 below).

b. The company purchases equipment on credit.

1. Decreases an asset and decreases equity.

2. Increases an asset and increases liability.

3. Decreases an asset and decreases liability.

4. Increases an asset and decreases an asset.

5. Increases liability and decreases equity.

6. Increases an asset and increases equity.

Short answer

Current liabilities are the liabilities that is to be repaid in one accounting year and the correct impact will be the impact 2

Step-by-step solution

Definition of current liability

The current liability is the amount owed by the company which is payable within the period of one accounting year.

Identification of the impact

The correct impact of this transaction on the accounting equation will impact 2 which is there is an increase in assets and an increase in liability. This is because the equipment is an asset and the acquisition of equipment will increase the asset and it purchased on credit which means it will increase the liability. Hence the correct impact will be 2.