Paying the principal plus interest would have which effect on the categories?
A)Total liabilities would be increased.
B)Total assets would be decreased.
C)Owner's equity would be decreased.
D)B and C could be correct.

Question

Quizplus · Accepted Answer

When paying the principal plus interest, it would decrease the total assets (choice B) as the cash is being used to satisfy the debt. It would also decrease the owner's equity (choice C) as the payment represents a reduction in the net worth of the business. However, it would not increase total liabilities (choice A) as the payment is a reduction in liabilities. Therefore, the correct answer is D.

Paying the Principal Plus Interest Would Have Which Effect on the Categories