On 1 September 2018 Streak-Free Window Cleaning pays $1800 in cash for supplies purchased on 22 July 2018. Assuming the business prepares monthly financial reports using the accrual basis, what effect does this payment have on the accounting equation?

Question

Quizplus · Accepted Answer

The payment of $1800 for supplies purchased on 22 July on 1 September has the effect of decreasing the cash at bank by $1800 as the payment is made. At the same time, the liability, which was recorded as account payable, is reduced by the same amount as the payment is made against it. Hence, the accounting equation is affected as: 
Assets = Liabilities + Equity 
The payment decreases the asset (cash at bank), and this decrease is directly offset by a decrease in liabilities (accounts payable), leaving the equity unaffected. Thus, the correct option is A.

On 1 September 2018 Streak-Free Window Cleaning Pays $1800 in Cash