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Since both sides of the balance sheet (the Assets side and the Liabilities/Owners' Equity side) must have equal totals, an entry showing an increase in an asset must be balanced with an corresponding increase in a liability or a decrease in another asset.

Generally, an increase in an asset (e.g., the acquisition of a new asset) means that either we have decreased another asset (e.g., cash) to pay for it, or we have incurred debt to acquire the asset (thereby increasing our liabilities).

1) increase in one asset - corresponding decrease in another asset (e.g. we pay cash for new asset)

2) increase in one asset - corresponding increase in a liability (e.g., we acquire an asset on credit)

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14y ago

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