Newton Company settles a liability by making a payment in cash.How does paying this liability affect the accounting equation of the business?
A) assets and liabilities decrease
B) liabilities decrease and equity increases
C) assets and liabilities increase
D) assets increase and equity decreases

Question

Quizplus · Accepted Answer

When a company settles a liability with a cash payment, its assets (cash) decrease and its liabilities decrease by the same amount, keeping the accounting equation balanced. Equity is not directly affected by this transaction.

Newton Company Settles a Liability by Making a Payment in Cash.How