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JAMB Principles of Accounts 1997 Question 6

Question 6

Accounting Equation

The effect of the payment of a liability is that it

  1. A.increases both assets and liabilities
  2. B.increases assets and decreases liabilities
  3. C.decreases assets and increases liabilities
  4. D.decreases both assets and liabilities.
Show the answer and explanation

Answer: D (decreases both assets and liabilities.)

Explanation

Paying a debt reduces cash (an asset) and reduces the amount owed (a liability).