ASU BIO202 Anatomy Physiology II Exam 1 Practice Exam

A company pays $7,500 cash to settle an account payable. What is the effect?

Assets decrease $7,500 and liabilities decrease $7,500 Assets decrease $7,500 and expenses increase $7,500 Liabilities decrease $7,500 and equity increases $7,500 Assets increase $7,500 and liabilities decrease $7,500

Correct Answer:

Assets decrease $7,500 and liabilities decrease $7,500

Explanation:

Cash decreases and accounts payable decreases by the same amount. Paying a previously recorded liability does not create a new expense.

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