Gomez Service Company paid its first installment on a note payable of $2,000. How will this transaction affect the accounting equation?
A) increase in liabilities (Notes Payable) and decrease in assets (Cash)
B) decrease in assets (Cash) and decrease in owner's equity (Note Payable Expense)
C) decrease in assets (Cash) and decrease in assets (Notes Receivable)
D) decrease in assets (Cash) and decrease in liabilities (Notes Payable)

Question

Quizplus · Accepted Answer

Paying off a portion of a note payable decreases the company's cash (an asset) and also decreases the amount of the company's liabilities (notes payable), as the obligation to pay back the loan is partially fulfilled.

Gomez Service Company Paid Its First Installment on a Note