Question

Saturn, Inc. paid $ 5,000 on accounts payable. How does this transaction affect the accounting equation of​ Saturn?

A. assets decrease by $5,000 and equity increases by $5,000

B. assets decrease by $5,000 and liabilities decrease by $5,000

C. assets increase by $5,000 and liabilities increases by $5,000

D. assets increase by $5,000 and equity decreases by $5,000

Answer 1

Answer -

B. Assets decrease by $5000 and liabilities decrease by $5000.

Explanation:

Saturn, Inc. paid $ 5000 on accounts payable. In this transaction Cash of $5000 goes out of business, that means asset of business decrease by $5000 and accounts payable of business is paid therefore, liabilities of business decrease by $5000.

Journal entry for the above transaction:

Accounts	Debit	Credit
Accounts payable	$5000
Cash		$5000
(To record payment on accounts payable)