A company pays $5,000 to its creditor. This would
A) increase both the company's assets and liabilities.
B) decrease both the company's assets and liabilities.
C) decrease the company's liquidity.
D) increase the company's owner's equity.

Question

Quizplus · Accepted Answer

Paying off a creditor decreases the company's liabilities (because it is paying off debt) and also decreases its assets (because it is using cash or other assets to make the payment).

A Company Pays $5,000 to Its Creditor