PRC-1 · Chapter 1 · Question 27 of 100
What is the immediate effect on the accounting equation when a business uses its cash at the bank to fully settle an outstanding balance owed to a credit supplier?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Decrease in an asset and decrease in a liability.
Explanation
Paying a credit supplier reduces the cash balance (decrease in asset) and simultaneously settles the amount owed (decrease in trade payables liability).
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