When Rosemary buys a printer on account, which element of the accounting equation increases?

• A. Assets only
• B. Liabilities only
• C. Equity only
• D. Both Assets and Liabilities

Answer: (D)

When Rosemary buys a printer on account, she is acquiring an asset (the printer) that she will pay for later, which means she incurs a liability (the amount owed for the printer). In the accounting equation, which is structured as Assets = Liabilities + Equity, both sides must remain balanced.

In this scenario, the purchase of the printer leads to an increase in assets because the printer is a new asset on the company's balance sheet. Simultaneously, since Rosemary is purchasing it on account, she also recognizes a liability for the amount she owes to the vendor.

Thus, both the assets and liabilities increase as a direct result of this transaction, illustrating the dual effect that transactions have within the accounting equation. This is a fundamental principle in accounting where every financial transaction affects at least two accounts to maintain balance.