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JAMB Principles of Accounts 2007 Question 47

Question 47

Accounting Equation

If Mr. Ajasin paid his creditors ₦5 000 out of ₦20 000 owed, what would be the effect of this transaction on the accounting equation?

  1. A.A decrease in the total liabilities and assets by ₦5 000.
  2. B.An increase in total liabilities and owners' equity by ₦15 000.
  3. C.An increase in the total assets by ₦15 000.
  4. D.A decrease in owners' equity by ₦5 000.
Show the answer and explanation

Answer: A (A decrease in the total liabilities and assets by ₦5 000.)

Explanation

Cash (an asset) falls by ₦5 000 and creditors (a liability) fall by ₦5 000; capital is unchanged.