Question

Assuming that the transaction for a bank loan has already been recorded, if a company takes the proceeds from a bank loan and uses it to purchase merchandise, which of the following effects is true for this transaction?

• Expenses increase.

• Assets do not change.

• Liabilities increase.

• Assets increase.

• Liabilities decrease.

• Assets decrease.

Answer 1

Correct answer : Liabilities Increases And Asset Increases.

A liability is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services. Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, earned premiums, unearned premiums, and accrued expenses. Even marriages can change your liability.

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. Assets are reported on a company's balance sheet and are bought or created to increase a firm's value or benefit the firm's operations. An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent.

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