Question

The payment of an account payable

has no effect on total assets.

decreases total assets.

increases total assets.

increases total liabilities.

Answer 1

The correct answer is decrease total assets

An account payable is a Current Liability that arises when we owe money to someone. Usually in a business goods may be purchased on credit. This means the seller allows us a credit period within which we have to make payment for the good. Thus at the time of making credit purchase, an account payable arises in our books of accounts.

Payments made to account payable will lead to reduction in liabilities and also reduction in assets because we are using cash to discharge our obligation. Cash is an asset thus outflow of cash to pay the accounts payable will result in reduction of total assets.