Photometer Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?
A) Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase.
B) Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect.
C) Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect.
D) Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase.
E) Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease.

Question

Quizplus · Accepted Answer

Paying off accounts payable decreases both the assets and the liabilities of the company by the same amount, in this case $30,000. Therefore, the accounting equation remains in balance. There is no effect on the equity section. The correct option is B, where assets decrease by $30,000 but liabilities also decrease by $30,000.

Photometer Company Paid Off $30,000 of Its Accounts Payable in Cash