Question

Venus Inc. paid $5,000 for account payable. How does this transaction affect the accounting equation of Venus?

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 equity decreases by $5,000
D) Assets increase by $5,000 and liabilities increase by $5,000

Answer 1

Answer:

B) Assets decrease by $5,000 and liabilities decrease by $5,000

Explanation:

Account equation of any entity can be represented by following equation:

Assets=Equity+Liabilities

When the entity pays for any account payable, its current liabilities in balance sheet are decreased and at the same time the cash included in the current assets of the balance sheet is also decreased.

In this case, the $5,000 paid by Venus Inc.  will decrease the liabilities and assets section of Venus's balance sheet by $5,000.

So based on the above discussion, the answer shall be B) Assets decrease by $5,000 and liabilities decrease by $5,000