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Apparent cash increases. Net worth goes down. You have more cash because you have borrowed money. Your net worth will go down due to interest.

Debt free is the way to be unless you have money making reasons for that loan.

GAAP: I try to remember to state that my answers are based on the U.S.A. GAAP and Double-Entry Accounting.

If you have an increase in both CASH (asset) and Liabilities, it's as stated above, more than likely due to a "loan" of some sort. For example a bank loan will increase your cash while at the same time increasing your "account or note payable" liability. However, there could be other possibilities.

1. You received Cash in advance for a service or product. Let's say you are a house painter and your customer has paid you a deposit of $1500 to paint their house, this is listed as "Unearned Revenue" which, until it is "earned" (i.e. the job is complete) it is listed as a liability. The reason Unearned Revenue is listed as a liability is simply due to the fact that until the job (or if it is even a product you are supplying) is complete, your company is at an obligation to provide the service or product, if for any reason they can not, then the company must "pay" the amount back to the customer. Once the service or product is provided a journal entry is made, debiting Unearned Revenue and crediting Revenue.

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