Payment is made for land purchased earlier on credit.For this transaction, identify the effect on the accounting equation.
A) Assets increase and liabilities increase.
B) Assets increase and stockholders' equity increases.
C) Liabilities increase and stockholders' equity decrease.
D) Liabilities decrease and assets decrease.

Question

Quizplus · Accepted Answer

When payment is made for land purchased earlier on credit, the liability decreases as the payment reduces the outstanding balance. At the same time, the asset cash decreases as cash is being used to make the payment. Therefore, the accounting equation will show a decrease in both liabilities and assets, resulting in a decrease in the total equity.

Payment Is Made for Land Purchased Earlier on Credit