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 owner's equity

Question

Quizplus · Accepted Answer

When the business pays a creditor, the creditor's account (a liability) is decreased, and the cash account (an asset) is decreased as well. This results in a decrease of an asset and a decrease of a liability, as seen in option B.

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