Newton Corporation settles a liability by making a payment in cash. How does paying this liability affect the accounting equation of the business?
A) Assets and liabilities decrease.
B) Liabilities decrease and equity increases.
C) Assets and liabilities increase.
D) Assets increase and equity decreases.

Question

Quizplus · Accepted Answer

Paying a liability with cash decreases the company's assets (cash) and also decreases its liabilities, maintaining the balance in the accounting equation.

Newton Corporation Settles a Liability by Making a Payment in Cash