Alpha Company has assets of $620,000, liabilities of $260,000, and equity of $360,000. It buys office equipment on credit for $85,000. What would be the effects of this transaction on the accounting equation?

a. Assets increase by $85,000 and liabilities increase by $85,000

b. Assets decrease by $85,000 and expenses decrease by $85,000

c. Assets increase by $85,000 and expenses decrease by $85,000

c. Liabilities increase by $85,000 and expenses decrease by $85,000.

d. Assets increase by $85,000 and expenses increase by $85,000 Screenshot

The effect to the accounting equation is;

a. Assets increase by $85,000 and liabilities increase by $85,000

Explanation:

The accounting equation can be described as a tool that is the basis for the double-entry system of accounting. The accounting tool is utilized especially in a company's balance sheet where the total assets should equal the total liabilities and shareholders equity. This can be expressed using the equation below;

A=L+E

where;

A=assets

L=liabilities

E=shareholder's equity

This can also be written as;

Total assets=Liabilities+shareholder's equity

An asset is anything that has some economic value that is owned by the company. A liability on the other hand represents all items of economic value that the company owes to an entity in the form of a loan. Shareholders equity is the economic value of all the items granted o the shareholders when all the assets and liabilities are liquidated.

Using the expression to determine the effects in Alpha company;

Total assets=$620,000

Liabilities=$260,000

Equity=$360,000

Total assets (620,000) = Liabilities (260,000) + equity (360,000) = 620,000

If it buys equipment worth $85,000, it gains an asset worth that value and also since the equipment was bought on credit, the liabilities also increase by the same amount.