- 1 Marks
Question
Which of the following will be the effect of taking a loan from the bank by an entity?
A. Increase in both liabilities and equity
B. Decrease in assets and increase in liabilities
C. Decrease in both liabilities and equity
D. Increase in both assets and liabilities
E. Increase in assets and decrease in liabilities
Answer
Answer:
D. Increase in both assets and liabilities
Explanation:
When an entity takes a loan from the bank, both the entity’s assets (cash or bank balance) and its liabilities (loan or debt) increase. Equity is unaffected at the point of borrowing.
- Tags: Assets, Liabilities, Loan
- Level: Level 1
- Topic: Financial Statements Preparation
- Series: MAY 2016
- Uploader: Kwame Aikins