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.Assets = Liabilities + Stockholders' Equity

Question

Quizplus · Accepted Answer

When Saddleback Company pays off $30,000 of its accounts payable in cash, the effects on the accounting equation are:
- Assets decrease by $30,000 (cash is an asset and is decreasing)
- Liabilities decrease by $30,000 (accounts payable is a liability and is decreasing)
Thus, the accounting equation stays in balance. There is no effect on equity since this transaction does not involve any owner's equity items.

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