Saddleback Company paid off $30,000 of its accounts payable in cash.What would be the effects of this transaction on the accounting equation?
A)Assets,$30,000 increase; equity,$30,000 increase.
B)Assets,$30,000 decrease; liabilities,$30,000 decrease.
C)Assets,$30,000 decrease; liabilities,$30,000 increase.
D)Liabilities,$30,000 decrease; equity,$30,000 increase.
E)Assets,$30,000 decrease; equity $30,000 decrease.

Question

Quizplus · Accepted Answer

When Saddleback Company pays off its accounts payable, its liabilities decrease since it no longer owes that amount to its creditors. Therefore, there is a decrease in liabilities by $30,000. Since the payment is made in cash, there is also a decrease in the company's cash account by $30,000. This results in a decrease in assets by $30,000, as well. Therefore, the effect on the accounting equation is a decrease in both assets and liabilities by $30,000, resulting in no overall change to equity.

Saddleback Company Paid Off $30,000 of Its Accounts Payable in Cash.What