Question: What is the effect of a $500 purchase of inventory on the trial balance?

Options:

1. Increase in assets and increase in liabilities
2. Increase in assets and decrease in equity
3. Increase in assets and increase in expenses
4. No effect on the trial balance

Correct Answer: Increase in assets and increase in liabilities

Solution:

A $500 purchase of inventory increases assets (inventory) and increases liabilities (accounts payable) if not paid in cash.