A business paid $5,000 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

Paying off a creditor reduces the amount owed, hence decreases the liability, and decreases an asset (cash). Thus, the effect of the transaction is to decrease an asset and decrease a liability.

A Business Paid $5,000 to a Creditor in Payment of an Amount