Which of the following is an example of a transaction that affects only one side of the fundamental accounting equation (\(\text{Assets} = \text{Liabilities} + \text{Equity}\))?

• A. A company purchases equipment by paying cash.
• B. A company borrows money from a bank.
• C. A company pays off a loan using cash.
• D. A company issues shares to investors for cash.

Answer: (A)

Verified step by step guidance

1. Step 1: Begin by recalling the fundamental accounting equation: \( ext{Assets} = ext{Liabilities} + ext{Equity}\). This equation must always remain balanced, meaning any transaction will affect at least two accounts to maintain this balance.
2. Step 2: Analyze the first option: 'A company purchases equipment by paying cash.' In this case, the company is exchanging one asset (cash) for another asset (equipment). Since both accounts are on the same side of the equation (Assets), this transaction affects only the Assets side.
3. Step 3: Analyze the second option: 'A company borrows money from a bank.' Borrowing money increases both Liabilities (loan payable) and Assets (cash received). This transaction affects both sides of the equation.
4. Step 4: Analyze the third option: 'A company pays off a loan using cash.' Paying off a loan decreases both Liabilities (loan payable) and Assets (cash). This transaction affects both sides of the equation.
5. Step 5: Analyze the fourth option: 'A company issues shares to investors for cash.' Issuing shares increases both Equity (capital contributed by investors) and Assets (cash received). This transaction affects both sides of the equation.