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Question

When amount is paid to creditors, what will be the impact in accounting equation?


  1. Assets - No effect
    Liabilities - Decrease
    Capital - Increase

  2. Assets - Decrease
    Liabilities - No effect
    Capital - Decrease

  3. No impact

  4. Assets - Decrease
    Liabilities -Decrease
    Capital - No effect


Solution

The correct option is D

Assets - Decrease
Liabilities -Decrease
Capital - No effect


When amount is paid, cash will decrease which is an asset and creditors will reduce which is a liability.

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