When a company takes out a loan, it receives cash or another asset in exchange for a promise to repay the borrowed amount in the future. This transaction impacts the accounting equation, which states that Assets = Liabilities + Equity.
In this case, when the loan is taken, the company's assets increase because it receives cash or some other asset from the lender. Simultaneously, the company's liabilities increase because it now has an obligation to pay back that loan. Therefore, both sides of the accounting equation reflect an increase, maintaining the balance of the equation. Assets grow due to the increase in cash or asset from the loan, while liabilities grow due to the obligation to repay the loan.
Thus, the correct answer accurately reflects the changes: both assets and liabilities increase due to the loan. This aligns well with the fundamental structure of the accounting equation, showing that debts increase with assets when a loan is taken.