A $5,000 account payable is paid by the business.How is the accounting equation affected?
A) Assets decrease $5,000; owner's equity increases $5,000.
B) Assets decrease $5,000; liabilities decrease $5,000.
C) Assets increase $5,000; owner's equity decreases $5,000.
D) Assets increase $5,000; liabilities increase $5,000.

Question

Quizplus · Accepted Answer

When the $5,000 account payable is paid off, both the asset (Cash/Bank) and liability (Accounts Payable) accounts are decreased by $5,000. This means that there is no net effect on the accounting equation as both sides of the equation have decreased by the same amount, thereby maintaining balance. Therefore, neither the owner's equity nor the assets increase or decrease.

A $5,000 Account Payable Is Paid by the Business