A business paid $5,800 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to
A) increase one asset, decrease another asset.
B) increase an asset, increase a liability.
C) decrease an asset, decrease a liability.
D) increase an asset, increase owner's equity.

Question

Quizplus · Accepted Answer

When a business pays a creditor, there is a decrease in cash (asset) and a decrease in accounts payable (liability). Therefore, the effect of the transaction on the accounting equation is a decrease in both assets and liabilities, which is represented by choice C. There is no increase in owner's equity in this transaction.

A Business Paid $5,800 to a Creditor in Payment of an Amount