Which financial aspect reflects an increase when purchases are made on credit?

Which financial aspect reflects an increase when purchases are made on credit?

• A. Owner's equity
• B. Assets
• C. Liabilities
• D. Revenue

Answer: (C)

When purchases are made on credit, the financial aspect that reflects an increase is liabilities. This is because credit purchases involve incurring a debt that needs to be repaid in the future. When a company buys goods or services on credit, it increases its accounts payable, thus increasing its overall liabilities. This aligns with the accounting equation, which states that assets equal liabilities plus owner's equity. When liabilities increase due to credit purchases, the immediate effect is a corresponding increase in either assets (if the purchase results in acquiring goods) or liabilities, maintaining the balance of the equation. The other options do not accurately reflect the nature of credit purchases. Owner's equity remains unchanged at the point of purchase; assets increase but are matched by the increase in liabilities; and revenue is not directly impacted because revenue is typically recognized when goods or services are delivered rather than at the time of purchase. Therefore, the most appropriate reflection of increasing financial responsibility in this context is through liabilities.

When purchases are made on credit, the financial aspect that reflects an increase is liabilities. This is because credit purchases involve incurring a debt that needs to be repaid in the future. When a company buys goods or services on credit, it increases its accounts payable, thus increasing its overall liabilities.

This aligns with the accounting equation, which states that assets equal liabilities plus owner's equity. When liabilities increase due to credit purchases, the immediate effect is a corresponding increase in either assets (if the purchase results in acquiring goods) or liabilities, maintaining the balance of the equation.

The other options do not accurately reflect the nature of credit purchases. Owner's equity remains unchanged at the point of purchase; assets increase but are matched by the increase in liabilities; and revenue is not directly impacted because revenue is typically recognized when goods or services are delivered rather than at the time of purchase. Therefore, the most appropriate reflection of increasing financial responsibility in this context is through liabilities.