[mcgrath99]

A&M Co. purchased land for $50,000 with $10,000 paid in cash and $40,000 in a note payable due three years from now. What effect does this transaction have on the accounts under the accrual basis of accounting?

[mcgrath99]

Net increase in assets of $50,000 and a net decrease in liabilities of $40,000

[morgaine300]

You can never have something out of balance like that. First, 50K and 40K is out of balance, so the dollar amounts don't jive. Second, an increase on the left and a decrease on the right doesn't balance.

Liabilities represent what you owe (or the obligation you have) to others. Do not look at liabilities as "negative to the company." Look at what it represents. If you purchased something on your credit card, your liability to them doesn't decrease, right?

And what happened to the $10,000 of cash?

[Allybebe]

mcgrath99 is wrong, the answer is:
Net increase in assets of $40,000 and a net increase in liabilities of $40,000