Payment is made for an electric bill which was received and recorded earlier.For this transaction,identify the effect on the accounting equation.
A)Assets increase and liabilities increase.
B)Assets increase and stockholders' equity increases.
C)Liabilities increase and stockholders' equity decreases.
D)Liabilities decrease and assets decrease.

Question

Quizplus · Accepted Answer

When payment is made for an electric bill, it means that a liability (accounts payable) is being reduced, thus causing a decrease in liabilities. At the same time, an asset (cash) is also being reduced, leading to a decrease in assets. Therefore, the effect on the accounting equation is that liabilities decrease and assets decrease, which is captured in option D.

Payment Is Made for an Electric Bill Which Was Received