Otto Company paid a credit on account, $1,500. Which of the following is true in regards to the fundamental accounting equation?

Question

Quizplus · Accepted Answer

When Otto Company pays a credit on account, it means they are reducing their accounts payable (a liability account) by the amount paid. Therefore, the fundamental accounting equation would be represented as follows:
Assets = Liabilities + Owner's Equity
If liabilities decrease (by $1,500), then the equation must reflect this change, thus:
Assets = Liabilities - $1,500 + Owner's Equity 
Therefore, choice C is the correct answer since it reflects a decrease in liabilities by $1,500.

Otto Company Paid a Credit on Account, $1,500