What happens to total assets when a company incurs a $10 increase in debt?

When a company incurs a $10 increase in debt, total assets will increase by $10. This is due to the fundamental accounting equation, which states that Assets = Liabilities + Equity. When debt, a liability, increases, it is typically accompanied by an equal increase in assets.

For instance, if a company takes on a loan of $10, it receives $10 in cash or other assets while simultaneously increasing its liabilities by $10. As a result, there is no net change in the company’s equity, but total assets increase by the same amount as the debt incurred. This reflects the dual aspect of accounting, ensuring that every financial transaction maintains the balance of the accounting equation.

In this scenario, options that suggest total assets decrease, remain unchanged, or experience an indirect effect do not align with the basic principles of accounting, as they would inaccurately represent the direct and reciprocal relationship between liabilities and assets.