If assets increase by 50 and liabilities decrease by 20, by how much does owner's equity change?

If assets increase by 50 and liabilities decrease by 20, by how much does owner's equity change?

• A. Increase by 70
• B. Increase by 30
• C. Decrease by 70
• D. No change

Answer: (A)

In double-entry accounting, assets equal liabilities plus owner's equity, and any change must keep that equation balanced. Here, assets rise by 50 while liabilities fall by 20. The needed change in owner's equity is the amount that makes the equation balance: ΔOE = ΔA − ΔL. Plugging in: ΔOE = 50 − (−20) = 70. So owner's equity increases by 70. If ownership equity only rose by 30, or fell, the equation wouldn’t balance with the asset and liability changes, since the net effect on the right side wouldn’t match the +50 in assets.

In double-entry accounting, assets equal liabilities plus owner's equity, and any change must keep that equation balanced. Here, assets rise by 50 while liabilities fall by 20. The needed change in owner's equity is the amount that makes the equation balance: ΔOE = ΔA − ΔL. Plugging in: ΔOE = 50 − (−20) = 70. So owner's equity increases by 70.

If ownership equity only rose by 30, or fell, the equation wouldn’t balance with the asset and liability changes, since the net effect on the right side wouldn’t match the +50 in assets.