A business paid $7,000 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) decrease an asset, decrease a liability
C) increase an asset, increase a liability
D) increase an asset, increase stockholders' equity

Question

Quizplus · Accepted Answer

When a business pays a creditor, it decreases its cash (an asset) and decreases its accounts payable (a liability) by the same amount. Thus, the transaction has no effect on the total amount of assets or liabilities in the accounting equation, but it does decrease both an asset and a liability.

A Business Paid $7,000 to a Creditor in Payment of an Amount