The effect on the balance sheet when the business pays a creditor is:
A) decrease asset bank; decrease equity.
B) decrease asset creditor; decrease liability bank.
C) decrease asset bank; decrease liability creditor.
D) none of the above.

Question

Quizplus · Accepted Answer

When the business pays a creditor, the asset bank account decreases as cash leaves the business, and the liability creditor account also decreases as the debt is paid off. This results in a decrease in both assets and liabilities on the balance sheet. There is no impact on equity since it is not directly involved in the transaction.

The Effect on the Balance Sheet When the Business Pays