When you borrow money?

Question

When you borrow money from the bank say 500 bucks...

do your assets increase
do your liabilities decrease
equity increase
or revenue decrease?

Answer 1

If you borrow 500 bucks from the bank that is considered a note payable (alot like accounts payable with the bank being the vendor), therefore it is a liability so your liabilities increase. However, that is not all, to balance the accounting equation of

Assets=Liabilities + Equity

you would have to either decrease equity by the same amount or increase assets. Borrowing money does not affect the owner's equity so you have to increase assets by 500 bucks, which makes sense as you gained 500 bucks in your cash account and cash is an asset. So, simply put Assets increase by 500 and Liabilities increase by 500.

Answer 2

Assets don't change - the amount of financial 'worth' you have

Liabilities increase - the amount you 'owe'

Equity does not change - Equity is the portion of a thing you 'own' version the portion 'owned by the bank'. All you are really doing is transfering assets.

Revenue isn't really effected - This is what you make. Unless the loan allows you to make more money.

Answer 3

your assets will increase by $500 and your liabilities will increase by $500.

your liabilities will not decrease

that transaction has no effect on equity or revenue.

Answer 4

If I were in this position, I would most likely borrow. I mean why sell your assets?

Answer 5

your liabilities increase