What is the effect of increase liabillities on assets ?

Your qustion is little bit twisting. From my understanding, please note that the following are an example which will increase the assets and liabilites / Equities at the same time:

a. Bank Loan

b. Equipment or anyother fixed assets purchased on credits

c. Raising share capital

d. Raising Debentures

E. Raising Preference share capital

F. and so on.

EFFECTS:

There is no effect, if it is under the below equation:

a. Assets = Liabilites+Equity

b. Equity = Assets - Liabilities

c. Liabilities = Aseets - Equities

But caluclating the division assets (current assets and current liabilites) will vary and have an effects and it will affect the cash flow even.

Note: if my answer is wrong, your comment is appreciated.

Working capital of the company shall effect drastically depending upon the difference between value of CL & CA

If the difference is more than the company has to seriously think on this lines and take necessary steps to resolve the situation..

It will affect the leverage of the company except in case the corresponding asset is financed by equity.

There are a lot of effects of increased liabilities on assets:

A- As a result of one entry as mentioned by Shaikh Mohammed, there are many possibilites examples are:

1-receiving short term loan will increase CA and CL

2-receivinb long term loan will increase CA and Long Term Liabilities

3- Having fixed assets on credit will increase FA and CL

4- havign fixed assets on Long term based contracts will increase FA and Long Term Liabilities

5-recording accrued payments will increase expenses and increase CL

6-Raising finance as mentioned by Shaikh Mohammed will also increase long term liabilities

B- Second situation is that the increased liabilities are a result of many trnasactions during the period, exmaple would be that we are holding to pay vendors or loan payments, because of non-availability of ample funds. So as a result CA are generating funds but we are using them for acquiring new fixed assets, or business expansion or new investments in projects, then CL are increasing.

This is a good approaches for a short run period, to use extra credit from vendors, which effects the operating cycle as well, but in the long run it is not a good practice, as vendors will loose their confidence in the company and would eventually stop selling to the firm.

Capital decreases

It affects financial position of company due to which we cannnot able to make the payment to suppliers and other lenders in time

IF there is change in CL then :

rediction in working capital since WC = CA- CL

Due to Increase in liabilities over assets results into reduction of current ration of the company.

Fiance Company and banks mostly varify the higher Current Assets ration to make finace of that company.

Accordingly, its better for the compant to balance between its assets and liabilities to run the business smoothly and satisfying the needs of outsid readers.

An increase liabilities shows slow pace of the business resulting in to low profitability thus inability of the company to pay in time leading to increase in liabilities.