Question

Saddleback Company paid off $45,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?

Answer 1

Answer:

Assets and liabilities decrease by  $45,000. Equity remains unchanged.

Explanation:

Accounting equation = Assets = Liability + Equity

Accounts payable is the amount owed by a company to its suppliers for goods or services received that have not yet been paid for.

Accounts payable is a liability. and cash is an asset. so when the liability is settled, liability reduces and assets reduces.