If a business buys equipment for cash, what is the effect on the accounting equation?

• A. Assets increase by the full amount
• B. Assets decrease by the full amount
• C. Assets increase (Equipment) and decrease (Cash), with no net change to total assets
• D. Liabilities increase

Answer: (C)

Buying equipment with cash is an asset swap. You increase Equipment (an asset) and decrease Cash (another asset) by the same amount, so total assets stay the same. Liabilities and equity aren’t affected because no new obligation or owner stake is created. In double-entry terms, you debit Equipment and credit Cash for the purchase price, leaving the accounting equation balanced with no net change in total assets.